Is Your Health System Ready for What’s Next? A Recession or More Malaise?

McGuireWoods partners Bart Walker and Kayla McCann Marty recently co-authored an article exploring how well hospitals are positioned to withstand a potential recession amid the lingering woes due to the pandemic.

In the article, they outline some key considerations for health system management teams and boards to prepare for such an eventuality. Below are some takeaways that help frame what’s crucial to organizational readiness.

• Diverse Skill Sets: It is critical to have a multidisciplinary team of individuals to address a variety of operational and strategic functions, including treasury management, capital resource allocation and budgeting, technological innovation, operational performance improvement, and risk management.
• Operational Effectiveness and Scale: A range of affiliation and partnership structures could be considered to enhance scale and help bridge core competency gaps in terms of innovation and technology. These affiliation strategies also present opportunities for cost-saving opportunities without sacrificing alignment. A broadened business platform can lower the cost of capital, absorb unexpected economic downturns, and shrink the overall expense structure.
• Capital Investment Priorities: Management teams should finetune a more detailed approach in identifying which capital projects should take precedence over others. As the healthcare landscape shifts away from the inpatient setting, consumer-friendly, higher-margin outpatient services are one obvious, less capital-intensive place to redirect capital. Proper resource allocation for capital projects will be particularly important as bank debt and bonds remain expensive and hospital credit is perceived as generally riskier by investors.
• Innovation: The attention of private equity investors and other disruptors like major retailers pose challenges to health systems. It will be crucial for health systems to direct resources toward innovation and affiliation to remain competitive and put themselves in a better position to withstand any adverse macroeconomic conditions.

For questions about the topics covered in this communication, please contact Bart Walker or Kayla McCann Marty.