BDO’s 2022-2023 Healthcare Stability Outlook Report

The U.S. economy is heading into a downturn — and that means additional headwinds are about to hit healthcare.

The downturn we’re experiencing is in many ways different than the ones that came before. It can be difficult to know what to expect as the pandemic rages on and the economy takes a swing for the worst.

Let’s take a look at some of the common issues you could see over the next few months and into 2023:

8 Ways the Downturn Could Impact Your Organization’s Finances

1. Demand decreases could lead to reduced revenue. This is especially true for discretionary services. Providers may have to cut certain services, due to both concerns with financial sustainability and staffing shortages.
2. Insurance coverage gaps could lead to lower reimbursement rates for providers, particularly as more patients find insurance through the marketplace or Medicaid.
3. Bad debt will likely increase, making it more difficult to collect payment for services rendered.
4. Days of cash on hand will likely decrease, leaving less liquidity for healthcare providers to work with and potentially triggering debt covenants.
5. Bond ratings may go down as debt covenant violations increase, resulting in higher interest rates.
6. Costs are likely to increase, especially labor and supply costs. In addition, due to pandemic pressures, there will likely be fewer options to reduce expenses compared to previous recessions.
7. Providers may struggle to make contractual payments such as lease payments. This is especially true for providers in the elder care space, such as skilled nursing facilities.
8. Private funding is likely to decrease. In particular, we could see reductions in private grant awards in the coming months.

If these challenges seem overwhelming, you’re not alone in your concerns. Fortunately, there are ways you can protect your organization and position yourself for growth.

5 Financial Opportunities You Don’t Want to Miss Out On

1. Assess your key financial metrics. Make sure you aren’t too heavily debt financed with variable rate debt.
2. Prioritize investments and funding. Ensure you’re committing funding to anything critical to business continuity. At the same time, look for projects that can be delayed. It’s a good idea to re-engage with investment advisors to re-evaluate your investment allocations.
3. Re-examine your revenue cycle. Consider optimizing or investing in Clinical Document Integrity (CDI), Coding and Revenue Integrity programs. Managing denials, streamlining business office functions and analyzing third party payer contract performance are important strategies to improve revenue performance.
4. Focus on strategic cost optimization. While there may be opportunities to identify and reduce certain high expenses, in the long-term you are likely to have more success with an optimization-focused approach.
5. Consider whether consolidation could help you achieve long-term financial stability. Explore options like M&A or consolidating real estate to see if there are opportunities to improve stability and performance.

Of course, the economic downturn will impact far more than your organization’s finances. You’ll have to be prepared to field challenges related to patient access & experience, operations, supply chain, technology, workforce, regulation and more.

Want to get the full list of challenges impacting these areas? Read our full report on BDO.com.

What’s the biggest challenge your organization is facing going into the downturn? Let me know in the comments below.