By Chloe Reichel
This post is the second in a series of question and answer pieces with Rina Spence about hospital administration and the COVID-19 pandemic.
The COVID-19 pandemic has brought numerous challenges to hospitals and hospital administrators: equipment shortages for both patients and health care workers; steep declines in revenue; and attendant staffing concerns.
Rina K. Spence served as the president and CEO of Emerson Hospital in Concord, MA from 1984 through 1994. Currently, Spence is an advisor to the Precision Medicine, Artificial Intelligence, and the Law Project at the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School.
Spence spoke with the Petrie-Flom Center to offer her perspective on the challenges hospitals are facing amid the COVID-19 pandemic. The conversation touched on: the basics of hospital administration; the business-like model by which many hospitals are run; unpopular decisions hospitals are making during the pandemic, like furloughing some staff and slashing retirement benefits; and steps forward in addressing the COVID-19 crisis at the hospital-level.
We’ve lightly edited and condensed the interview, which is running as a series of question and answer pieces. This second installment provides an overview of the administrative decisions hospitals are making during the COVID-19 pandemic, including cutting benefits for employees and furloughing staff.
Hospital administration in a crisis
CR: Could you talk a bit about the duties hospital administrators have to their employees during a time of crisis like this?
RS: I am surprised to see that at a time when you need to keep morale up, and you need to keep as many people on the front line, that there would be cuts. For example, I saw that there were cuts in the matching of retirement funds. Or cuts in certain personnel that were potentially not frontline.
And I suppose the hospital could say, well, we cut back on unnecessary surgeries and cut back on some of our outpatient, so we don’t need those people right now.
On the other hand, with a sort of mentality of all hands on deck, one could imagine some redeployment at a time like this. It’s hard to imagine that there aren’t areas that you could redeploy people into that would match their skills and be appropriate.
When you look at, why did one management team decide that it was okay to cut compensation or to cut this or that, that’s a judgment call and that is the culture of that institution.
CR: Could we talk about the slim margins that many hospitals run on and how the budget works?
RS: A hospital doesn’t have the kind of margin that a business would. It just doesn’t. It doesn’t make the kind of return that a for-profit business does. And part of that is because it has to staff up, whether somebody walks in or not, it needs to run the emergency room. So, it has to have a certain level of service, regardless of whether it’s totally full or not totally full. And you can figure out how to manage in time, when you have a lower census or a higher census, but you still need a basic building and basic equipment and basic staffing. That’s sort of a given, that a non-hospital business wouldn’t have to have as a given. That’s one issue that has to do with profitability.
And I suppose, the second issue that has to do with profitability is what you’re mandated to have. So, an institution has to have quality control people, has have to have certain kinds of staff that don’t deliver care, necessarily, but that are required for regulation. some percentage of hospital budget is simply spent on administrative staff required to be there for regulatory purposes.
So you have costs that are imposed by the government, by insurers, appropriate costs that have to do with overseeing of patient care, quality of care, and that aren’t necessarily directly related to an exam with a patient.
The other layer is of course the teaching and research layer. We want to have institutions provide teaching, we want to do cutting edge research, and that isn’t always fully reimbursed dollar for dollar. So, an institution ends up consuming some of those costs directly.
So the model, it becomes more and more complex, and harder to say well this is just a business, and we can cut here and there. Because we can’t just cut here and there.
CR: What is the main way that hospitals make money?
RS: How do you make money? Procedures. Institutions make their money on surgeries and various types of radiology procedures and treatments. So now if you have a situation like COVID, and you cut back on elective surgeries, on elective MRIs, obviously you’ve had a huge dent into what would have been your reimbursement, your payment for operations.
CR: And that would be difficult, regardless, but then there’s also the issue of the cash flow then affecting the ability to procure supplies? Is that something that we’re seeing?
RS: If I think back to, what are models to save money, one model is, you don’t have everything in stock — you get it on a certain date, you pretty much know what your needs are — until you can keep your cash flow in a more manageable state.
But if you have a crisis like this, and everybody all of a sudden has a huge need, 1) Is there enough, does the supply chain have enough? And 2) can you get it fast enough?
CR: What do you think about a government stimulus or assistance for hospitals during this time?
RS: They’ve got to. I mean, they are getting some assistance, let’s say, extra ventilators. But I also think it’s a time where you want hospitals to keep the morale up, keep the staff up, the engine running. And if they don’t have the reimbursement from the general public that they might have had for elective procedures, then I think a fund is appropriate to fill the gap.
CR: Taking the broader view, is there a way that we could have avoided this situation that we’re in, not in terms of the pandemic, but in terms of these issues with pay cuts and also the overall budget and operations — if there are there ways that the strain could have been less in these various aspects?
RS: I don’t know that I can answer that. I mean, the one area I would look at in terms of the strain is how supply chains work, and how just in time supplies work, I would probably want to better understand that, because that could be an area where everybody got caught short.