While it’s likely to be some time before we know the full extent of the devastation caused by the current coronavirus pandemic, it will be without question historic.
Even more, the post-COVID-19 recovery is expected to alter the landscape further for U.S. healthcare providers, who were already navigating shifting trends heading into 2020 and are now straining under the financial and clinical pressures of caring for the more than 2,400,000 — and counting — coronavirus patients to date. Is your practice or ambulatory surgery center prepared?Contents
Not unlike the spread of the ongoing coronavirus
pandemic, this was one researcher’s account
of how the Spanish flu, also known as the 1918
flu pandemic, swept across the United States
in three waves during 1918-19. As with the
current public health crisis, the human cost of
the 1918 flu pandemic was devastating: Infecting
one-third of the world’s population, the virus
ultimately killed 50 million globally, including
more than 650,000 in the United States alone.2
While macroeconomic data sets from the time are
unavailable, there’s little doubt about how the
1918 flu pandemic negatively impacted the U.S.
economy. A Federal Reserve Board of St. Louis
analysis suggests that the virus ground local
industry and commerce to a halt in communities
across the United States, with merchants
anecdotally reporting that business plummeted
by as much as 70% during the pandemic and
output in some coal mines dropped by half.3
“Many businesses, especially those in the service
and entertainment industries, suffered doubledigit losses in revenue,” the central bank’s
research shows.4
In the end, the 1918 flu pandemic corresponded
with a seven-month recession in the United
States that ended in March 1919. Similarly, the
1957-58 flu pandemic also hurled the nation into
crisis, leading to more than 100,000 deaths in the
“Spanish influenza moved across the United States in the same way as the pioneers had, for it followed their trails which had become railroads…the pandemic started along the axis from Massachusetts to Virginia…leaped the Appalachians…positioned along the inland waterways…it jumped clear across the plains and the Rockies to Los Angeles, San Francisco and Seattle. Then, with secure bases on both coasts…took its time to seep into every niche and corner of America.”1
United States and corresponding with an eightmonth economic contraction that ended in April
1958.
A more recent regional public health crisis shows
just how much more suspectable we are today
to the potential effects of a global pandemic: In
2002-03, SARS — caused by another coronavirus
strain — infected thousands of individuals in
Asia, primarily in China and Hong Kong, and cost
the global economy an estimated $40 billion in
lost output, according to a National Academies
Press study. The study also shows that SARS
decreased demand for services in China and Hong
Kong by an estimated 15% during the mostly
regional contagion.
It’s likely to be some time before we know the
full extent of the devastation caused by the
current coronavirus pandemic. But without
question, it will be historic. Even more, the
post-COVID-19 recovery is expected to alter the
landscape further for U.S. healthcare providers,
who were already navigating shifting trends
heading into 2020 and are now straining under
the financial and clinical pressures of caring for
the more than 2,400,000 — and counting —
coronavirus patients to date.
1 https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf
2 https://www.cdc.gov/flu/pandemic-resources/1918-pandemic-h1n1.html
3 Ibid.
4 Ibid.
5 https://www.nber.org/cycles.html
6 https://www.ncbi.nlm.nih.gov/books/NBK92473/
Great Recession lessons?
While in hindsight there were many warning
signs, the financial crisis of 2007-08 seemed to
happen all at once. In a 30-day period ending
Oct. 1st, 2008, the federal government took
over mortgage lending giants Fannie Mae and
Freddie Mac; Lehman Brothers, then the fourth
largest investment bank in the United States,
and Washington Mutual went bankrupt; Bank
of America bought struggling Merrill Lynch; the
Federal Reserve took over American International
Group; and President George W. Bush signed
the $700 billion Troubled Asset Relief Program
in a dramatic attempt to shore up the nation’s
financial sector.7
Officially, the economic recession spurred by the financial crisis lasted for 18 months, from December 2007 until June 2009. According to the U.S. Bureau of Labor Statistics, the unemployment rate peaked at 10% in October 2009, a few months after the contraction ended.8 As a result, the rising unemployment rate edged the healthcare industry closer to a crisis that had been many decades in the making: Rounds of corporate layoffs grew the ranks of the nation’s uninsured, which peaked at nearly 46.5 million people — nearly 18% of the population — in 2010.9 After growing from $4,145 to $7,624 in the decade leading up to Great Recession, per capita healthcare spending held steady around $8,000 annually between 2007-09, according to a Kaiser Family Foundation study.10
Officially, the economic recession spurred by the financial crisis lasted for 18 months, from December 2007 until June 2009. According to the U.S. Bureau of Labor Statistics, the unemployment rate peaked at 10% in October 2009, a few months after the contraction ended.8 As a result, the rising unemployment rate edged the healthcare industry closer to a crisis that had been many decades in the making: Rounds of corporate layoffs grew the ranks of the nation’s uninsured, which peaked at nearly 46.5 million people — nearly 18% of the population — in 2010.9 After growing from $4,145 to $7,624 in the decade leading up to Great Recession, per capita healthcare spending held steady around $8,000 annually between 2007-09, according to a Kaiser Family Foundation study.10
The Long View
While flattening out during economic downturns, the
U.S. healthcare system’s overall price tag continues to
grow
7 Various.
8 https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm
9 https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/
10 https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#item-nhe-trends_total-national-health-expenditures-us-billions-1970-2018
Centers for Medicare and Medicaid Services
statisticians published research at the time
challenging the then-conventional wisdom that
“healthcare spending is often thought to be
somewhat insulated from the immediate impact
of a downturn in the overall economy.”11 Centers
for Medicare and Medicaid Services statisticians
published research at the time challenging the
then-conventional wisdom that “healthcare
spending is often thought to be somewhat
insulated from the immediate impact of a
downturn in the overall economy.”12
Trends to watch
Telehealth
A 2020 American Medical
Association study found that physician telehealth adoption doubled between 2016-19, from 14% to 28%.15 Expect this rate to jump considerably
once the dust settles post-COVID-19: An official from the University of Rochester Medical Center
told The Lancet in April 2020 that there’s been
a ten-fold increase in telehealth visits in recent
weeks, calling it “as big a transformation as any
ever before in the history of U.S. health care.”16
Healthcare Access
About 28 million
individuals in the United States do not have
health insurance, according to the U.S.
Census Bureau. The Kaiser Family Foundation
estimates that as much as 7% of the uninsured
population, or 2 million individuals, will
require hospitalization due to coronavirus
symptoms during the pandemic. With the
federal government’s price tag to cover these
costs of treating the uninsured at $42 billion,
expect lawmakers from both parties to explore
expanding healthcare access after the 2020
presidential election.
Outpatient Care
Procedures performed
in ambulatory surgery centers (ASCs) have
increased 50% since 2005, according to an
Advisory Board study.17 There are many reasons
for that jump, but a primary reason is cost.
Medicare pays about half for a procedure
performed in an ASC rather than a hospital
outpatient department, saving the federal
program more than $2 billion annually.18 With
COVID-19-related healthcare costs expected
to exceed $550 billion in the next two years,
policymakers likely will look to proven lowercost settings like ASCs to balance the books.19
Consolidation - Accelerating Pressure on Independent Providers
Consolidation of healthcare providers by
hospitals, strategics and private equity firms has
increased dramatically over the past decade. For
example, Optum, owned by United Healthcare,
now employees 55,000 physicians nationwide.
Physician hospital employment increased by
11% between 2012-18, from 155,000 to 169,000
physicians, according to the Physician Advocacy
Institute.13 Already large private physician
groups continue to expand, and private equity
platform companies have proliferated in recent
years. Following the public health crisis, we
expect consolidators to acquire more practices —
and at a faster rate — as independent physicians
struggle to recover from the financial impact of
shelter-in-place orders. On average, physician
practices are experiencing a 55% drop in
revenue and a 60% dip in patient volume during
the pandemic, a Medical Group Management
Association survey shows.14
Outpatient Care
Procedures performed in ambulatory surgery centers (ASCs) have increased 50% since 2005, according to an Advisory Board study.17 There are many reasons for that jump, but a primary reason is cost. Medicare pays about half for a procedure performed in an ASC rather than a hospital outpatient department, saving the federal program more than $2 billion annually.18 With COVID-19-related healthcare costs expected to exceed $550 billion in the next two years, policymakers likely will look to proven lowercost settings like ASCs to balance the books.19
Spotlight On Cardiology
Lower-cost outpatient procedures expected to drive
growth opportunities
11 https://www.healthaffairs.org/
12 https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2009.0839
13 http://www.physiciansadvocacyinstitute.org
14 https://mgma.com/
15 https://www.ama-assn.org/system/files/2020-02/ama-digital-health-study.pdf
16 https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30818-7/fulltext
17 https://www.advisory.com/daily-briefing/2019/03/05/asc-shift
18 https://www.ascassociation.org/
19 https://www.ahip.org/
Interested in learning more about the healthcare real estate landscape? Let’s talk.
Merritt Healthcare Advisors
is the industry’s leading healthcare advisory
firm focused exclusively on representing owners
of healthcare businesses, surgical facilities
and practices that are considering a strategic transaction, whether it is partnering with another
group, selling an interest in their business or
growing their business through acquisitions. We
offer:
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In addition to transactional expertise, Merritt Healthcare principals have developed and operated over 20 ASCs, partnering with over 300 physicians in the process.
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