EBLF Health+Benefits

Stress Testing Future Pandemics: Are We Prepared for What’s Next?

A preview of a new health coverage study.
By David Smith Posted on August 4, 2021

The premise for this argument is rooted in historical evidence that novel pathogens most frequently develop and are transmitted through animals. The massive deforestation taking place in economies with significant economic growth, significant shifts in food production, and sustained globalization all play into this theory. In fact, since 2002, there have been five material pandemics. Prior to that and stretching back to 1855, there had only been six.

COVID-19 is a novel pathogen with the unique characteristics of high transmissibility and elongated, asymptomatic incubation. The rapid proliferation of the virus is unparalleled in the modern era, challenging political, social, and economic systems in new ways. The long-term implications of COVID-19 remain unknown as variants of the virus continue to vex the global community.

However, we have enough data to begin understanding COVID-19’s impact on the country’s hospitals as the front-line infrastructure for responding to public health crises. Ensuring the viability and resilience of these institutions is critical to minimizing loss of life and comparatively extreme disruptions to the economy. To this end, we established a methodology to gauge the level of financial stress due to COVID-19 on our nation’s hospitals.

Our analysis concludes that the overall effect of COVID-19 on the nation’s hospitals will wipe out $282 billion-$393 billion in assets from losses not fully mitigated by government subsidies or gradual returns to pre-pandemic utilization levels.

We established criteria that had a demonstrable impact on hospitals’ financial integrity in 2020 and 2021. The first was an assessment of the impact on reduced inpatient utilization caused by suspended elective services and patients’ aversion to visit care facilities. The second was the impact of the economic recession leading to increased Medicaid coverage and number of uninsured patients.

While the larger study will be released later this fall, let me give you a preview.

Our analysis concludes that the overall effect of COVID-19 on the nation’s hospitals will wipe out $282 billion-$393 billion in assets from losses not fully mitigated by government subsidies or gradual returns to pre-pandemic utilization levels. This loss equates to a 32%-44% decline of “general fund assets” (the collective asset levels for America’s hospitals) and a 60%-84% decline of current assets (largely cash and cash equivalents). While the distribution and depth of this impact varies across regions, the financial pressure from COVID-19 on this critical infrastructure proves to be significant.

This analysis also examined the structural factors that we believe led to heightened stress. Volume-based payment incentives, over-reliance on asset-heavy brick and mortar, disjointed government response, and a fatigued workforce were strong contributors to a lack of financial resilience in our nation’s hospitals. Conversely, an unprecedented timeline for vaccine development, the size of subsidy packages, and independent corporate responsibility endeavors kept matters from being worse.

However, despite the positives, COVID-19 has aptly demonstrated that our social, political, and economic systems are currently not configured to withstand multiple events of similar magnitude over short or medium run periods. If the future holds limited public health crises, COVID-19 will have been just another blip on the timeline, soon relegated to the past. However, if past is prologue and we examine the future through the lens of multiple converging forces conspiring to inflict sustained public health challenges, the resilience of our systems must vastly improve for the preservation of crucial resources designed to save lives.

Be on the lookout for the full analysis coming to Leader’s Edge this fall.

David Smith is the CEO and Founder of Third Horizon Strategies.

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