If they hope to survive the COVID healthcare economy, many independent hospitals may need to cut their workforces, slash their expenses, reduce their investments, pull the plug on some clinical service lines—or all of the above.
That’s among the conclusions detailed in a new report written by analysts with the Waller law firm and the financial consultancy KaufmanHall.
The combination of scaled-back elective procedures and ballooned PPE purchasing helps explain why more than a quarter of U.S. hospital systems had used up more than 50% of their liquid reserves by mid-June, the authors note.
On the other side of the coin, the pandemic has revealed that some health systems are poised for growth.
“Ultimately, larger systems are better positioned for the future,” the authors write. “With higher revenues and access to assets to pledge as collateral, larger systems have obtained debt financing in greater amounts and on more favorable terms than their smaller counterparts.”
From this observation the authors predict a surge in M&A deals after COVID relents, releasing considerable pent-up demand.
However, that road may be rocky regardless of would-be buyers’ market strength.
“Although larger hospital systems are better suited to withstand the liquidity challenges of the pandemic than smaller and rural systems, they too are facing strains on their liquidity,” the authors point out. “This financial pressure is likely to reduce the number of potential buyers in the market even as many smaller systems seek out strategic transactions.”
The report is available in full for free (PDF).
Dave P. has worked in journalism, marketing and public relations for more than 30 years, frequently concentrating on hospitals, healthcare technology and Catholic communications. He has also specialized in fundraising communications, ghostwriting for CEOs of local, national and global charities, nonprofits and foundations.