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COVID-19 Governmental Funding Sources and Restarting Operations

May 7, 2020

Mukesh Gangwal and Paul Osborne moderated a discussion with Dr. K. Ranga Krishnan (CEO, Rush University System for Health), Daniel DeBarba Jr. (CFO, Catholic Health Services of Long Island), and Tri MacDonald (president, BRG). In this extract from their COVID-19 Challenges and Rapid Recovery podcast, they discuss COVID-19 governmental funding sources and how health systems will restart operations under a new-normal environment.

TRANSCRIPT

MW 00:00 In this extract from a discussion held in early May, Paul Osborne and Mukesh Gangwal, managing directors and BRG’s healthcare performance improvement practice, and BRG president Tri MacDonald talk with Ranga Krishnan CEO of the Rush University System for Health, and Dan DeBarba, CFO of Catholic Health Services of Long Island. They’ll discuss COVID-19 governmental funding sources and how health systems will restart operations under a new normal environment.

PO 00:28 This is Paul Osborne, and my first question is for Dan. The government funding sources, there’s quite a few of them out there between the CARES Act, the advanced accelerated Medicare payments, the FEMA, there’s a few other small ones. Have you accessed these? Have they been helpful? Do you think that the government, has it been rolling out, specifically, the CARES Act? Have they done a good job? Are you concerned about, down the road, future audits HHS or FEMA and so forth?

DD 01:02 Well, let me first say, we’ve tried to access every program possible. The concern about resurgence of the virus, we believe this will last a number of years. I think of funding sources really in two different ways. And one is from a cash flow perspective, and the other is from a profit and loss perspective. So certainly, there are programs out there for accelerated payments that help with your cash flow. So as an example, our health system got a $320-million-dollar advanced payment from Medicare, which is terrific. It has to be paid back starting in August. Over a one-year period, they’re going to take it right out of our remittance advices, those payments that Medicare provides to us directly. So you’re deferring paying with something like that. Now our health system has a reasonable amount of cash, so we didn’t necessarily need the $320 million. We’re concerned, but we just didn’t want to tap our investments, so we took advantage of it. We’re investing that money. We hope to make a few million dollars off it and pay it back in due course. But if you are a health system that is struggling and you need that money like so many did, paying that back starting in six months is going to be a real challenge. I mentioned we were to look at our cost structure. I have to imagine that health systems across the country are going to have to look at that just to pay back these loans that they’ve received from the federal government. We’ve done some of the other actions that I think most health systems have done. We’ve deferred accounts payable. We’ve deferred malpractice, and pension contributions, payroll taxes, you name it. Slowed down capital where and whenever possible. We’ve opened up a new line of credit but not tapped it at this point. So from our perspective, we ended up generating between all those, about $700 million of cash. And through the end of June, we think we’d have a $350 million problem. So not a cash flow problem. But from a profit and loss perspective, there was the first wave of funds that was $50 billion. Our health system, as an example, got 60 million of that 50 billion. $60 million. So if this goes to the end of June and we’re out 350 million, that’s about a sixth of what, ultimately, we’ll need.

DD 03:11 So we filed an application with FEMA for relief. A number of private organizations, state organizations. And what we think our saving grace will be is there’s a $12 billion fund. It’s about $80,000 per COVID admission is being provided to hospitals that had 100 COVID admissions. That’s huge dollars. And for us, it was $180 million. So that will certainly help. You asked a question about strings attached in future audits. I have to imagine that when the federal government, when we get through this and they look at the size of the deficit and you think about the infrastructure of healthcare auditors for lack of a better term that are out there working for the federal government, that every one of these dollars will be audited. And if you’ll look back to 2008 with the TARP Relief Program, there wasn’t a lot of blotting in certain areas, but in regulated areas, there were. Obviously, health care is highly regulated. I think everything will be looked at really closely. So I’m going to take a little liberty here and what do I think the worst possible would be and the worst position of our health care system based on what happened? So number one, if you have a health system that has a weak cash position, obviously, cash is king here, so that’s number one. Number two, if there’s not much relief coming, if you have a high Medicare population, most of the relief dollars were based on total revenue. So you’re actually hurt if you have high Medicare populations. If you lost elective procedures as nearly every hospital has, and you have less than 100 COVID cases, those hospitals have to be on life support. In many ways, we would have been had we not had the influx of COVID patients although it came with massive operation of clinical-emotional challenges. It really has helped us financially. And certainly, with this recent payment, dramatically.

PO 05:03 Thanks, Dan. Mukesh, I believe you had something you wanted to ask.

MG 05:07 The big question right now is when are we going and how are we going to emerge from this over the next 90 days, 180 days? Hospital health systems are losing, probably, 200 billion through June. 161 billion of that is due to lost revenue from canceled elective care, including surgeries and additional elective care. 37 billion has been lost in taking care of COVID patients. The extra cost of PPE is about 2.4 billion, and extra support to frontline workers in terms of screening, testing, transportation is about 2.2 billion. Clearly, the work is cut out for you, Ranga, and for you, Dan, over the immediate future. But talk to us a little bit on when and how are you going to emerge out of this or some semblance of your normal operations if there is such a word. Ranga?

RK 06:07 This is gonna be the difficult issue. But the way we’re doing it we’re dependent on when the state and the city in a given area is going to allow us to open. And when we decide to open, what we’re actually finding is a lot of patients are still wanting to wait. They don’t really need it immediately. But if the patients who do need it immediately, we’re bringing them in pretty quickly. So for the first short-term, right after opening, we think there’ll be enough people coming in to—I wouldn’t say close to normal, but pretty much moving up. But then when we look further out and we see the problem of people having lost insurance, people not working, their ability to pay, the shift that payer makes. The biggest problem is also going to remain the workforce. Trying to make sure the workforce is retained. The private physician groups continue to work with us. Many of them have been badly hurt, and they will have to figure out how they want to do things going forward. So we see challenges. Timeframe seems like pretty short-term. We are expecting continued ups and downs, depending on state and city-wide regulations. And we also have to decide in a system, do we need to prioritize certain locations for certain patients.

MG 07:24 Same question to you, Dan, how do you emerge out of this very ugly nightmare?

DD 07:28 I would answer word-for-word with what Ranga just relayed. We’re trying to decide the best way to approach the reopening. So we have six hospitals, and we’ve had a lot of internal discussions about whether we could make one hospital COVID-free, as an example, or maybe two of our hospitals COVID-free. Obviously, we couldn’t do that in the emergency department. We’d have to transfer those patients rather than admit them to the extent they needed to be. Or should we just have what we call clean sections of the hospital versus the COVID sections? Being that we have six hospitals, there’s advantages and disadvantages of doing both. We haven’t actually figured out which way to go yet. Our waiver application, it’s going to be a hybrid, meaning we’re going to take two of our hospitals that have both clean units and COVID units, and that’s how we’re going to start business again. But we haven’t ruled out yet trying to form one or two COVID-free hospitals. Part of it depends on what our competitors do. And part of it is we’re just not sure, to Ranga’s point, how fearful our patients will be. So we may have to be nimble in some of those decisions as we reopen our services.

PO 08:32 And Tri? Did you want to jump in?

TM 08:35 I have a quick question for each of you. Ranga, when we met earlier in the year and Mukesh and I came and called on you, I was particularly struck with the innovative nature of your vision, particularly how you were de-emphasizing what I would call kind of big facilities, centralized health care, and moving more to a education-based virtual. And while none of us relish the experience we’re going through, it strikes me that that, on a relative basis, it is going to pay off for you. The reward for that innovation will be accelerated now with this new world. Does that resonate with you?

RK 09:09 Yeah. And that’s exactly what we’re calling fast forward. It didn’t change our planning. We’re just accelerating it very fast. What’s interesting is how many other hospitals now want to join that type of system we’re trying to put out where we don’t want to own any more hospitals or beds. We’re totally trying to go for where things are going to move in the next five years.

TM 09:32 Dan, you and I haven’t yet had a chance to meet, but I hear a lot about your system. One of the things that has struck me from listening to our team is the homogeneity across this system. There’s less infighting amongst the hospitals within your system. Has this strengthened that and brought the entire system closer together, or are each hospital starting to reassert their own culture more?

DD 09:56 Actually, I think that’s a really brilliant insight. It actually has brought them closer together. I think the walls between hospitals, despite trying to work together as a health system, there’s this competitive nature, and we still have individual profit and loss statements and various metrics for each hospital. Certainly, in this COVID environment, that was gone. Transferring patients without thought. It was all about patient care and not about how each hospital was doing financially or from a metrics perspective. Whether or not it will last, that remains to be seen. But certainly, the last several months, that has happened. And if I can just comment on your previous question, one of the things we see happening here is we had a vision of a more virtual care system as well. But some of the physicians weren’t on board. Well, now, what we see is a seat change in positions because they know that, in order to survive, over the last several months, they’ve all had to get on board. And some of them like it. Some of them not. But certainly, there’s more of an open mind to that than there was before.

PO 10:54 Ranga, Dan, I know how busy you guys are right now trying to manage through this. I just want to thank both of you for your time today.

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Mukesh Gangwal

Managing Director

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Tri MacDonald

President

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Paul Osborne

Managing Director

San Francisco Bay Area