Rethinking Healthcare Expense Management

Corporate Finance & Restructuring | Healthcare & Life Sciences

January 13, 2021


The Kaiser Family Foundation estimates the cost of treating a single COVID-19 patient in a US hospital could reach $20,000.1 If ICU care and ventilation therapy are required, these costs could reach $88,000 per patient. For a large metropolitan level one trauma center with 70+ critical care beds, if all beds are 100% occupied with COVID-19 vented patients, the cost of care could reach $6.7 million. Few, if any, hospitals can sustain this kind of expense.

The pandemic hit hospitals like a perfect storm, exacerbating and conflating all three of their costliest areas of operation: labor, supplies and bad debt. A recent national survey of healthcare executives conducted by FTI Consulting confirmed that COVID-19 shook the operational expense management programs of most hospitals, and their Group Purchasing Organization (GPO) partners provided little to no assistance, leaving even the better-performing hospitals struggling to sustain their pre-COVID supply chain operating margins.2

Less efficient hospitals that were already wrestling with razor-thin operating margins prior to the outbreak are taking the hardest blows. One such example is a rural facility in Kentucky where, in a good year, the CEO hopes or 0.6% operating margins. The hospital post the first COVID wave saw operating margins at negative 25%.3,4

We don’t pretend to know what the future of healthcare will look like in a post-COVID world, but what we do know is, if healthcare systems continue to operate with a “business as usual” attitude once we emerge from this perfect storm, they are all setting themselves up for an endurance course laced with choppy waters.

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