The Post-Pandemic Healthcare Sector

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While the economy continues its recovery from the pandemic-induced recession in a relatively predictable manner and pace, the healthcare sector is struggling more than expected.

The reasons for this are not fully understood, but Covid-19-related trauma due to multiple factors likely plays a substantial role, as do the historical distortions that have defined the healthcare market since its inception. Because the healthcare sector constitutes nearly one-fifth of the larger economy in the U.S., any abnormalities within it should be observed carefully for they may have a far-reaching impact.

It is clear that the healthcare industry in the U.S. was severely impacted by the pandemic and its accompanying recession. Like nearly every other industry, months-long closures took place in various regions at different times throughout much of 2020 and 2021. Sharp declines in healthcare utilization across the board—that is, all types of medical care, on average—caused substantial drops in the typically stable and predictable revenue streams for hospitals and health systems.

Many healthcare workers were furloughed and many voluntarily left their posts permanently due to concerns of potential viral exposure. This contributed to the overall jump in unemployment claims from all industries. What is often overlooked, however, is that within the healthcare sector itself, this impact on the labor market was not evenly distributed among all types of roles.

The roles most likely to be furloughed were those that did not involve direct patient care provision. This would include administrative roles, ancillary support services such as cafeteria and maintenance staff, and much of middle management. Of course, there are always exceptions to any overarching trend, and this is no exception.

To that end, let us pivot specifically to the nursing role. We read a lot in the news about nurses, and this urgent shortage of nurses that is currently affecting essentially every hospital and health system.

The Nursing Shortage and ICU Redeployment

While nurses experienced slightly lower rates of furlough on average throughout the pandemic in comparison to their non-clinical peers, they were in no way immune to its impact, which is a common misconception.

In the earliest months of the pandemic and continuing throughout much of 2020, non-ICU nurses were furloughed at about the same rates as everyone else in the healthcare sector. It was not until the larger spikes began to rise in 2021, growing to such a scale that many more hospitals all over the country were overrun with cases despite vaccine roll-out.

This was around the same period in which the news began to highlight specifically the growing shortage of nurses. What the news often failed to make clear was that this shortage was overwhelmingly for ICU-trained nurses.

To be clear, hospitals were not overwhelmed with Covid patients because they furloughed too many of their staff and didn’t have enough left. The reasons are complex, but it can be best understood as a temporal mismatch. That is, the virus moved faster through populations than clinical staff could be assembled (and equipment procured) in order to care for them.

Many nurses, particularly those who care for inpatients in other departments, can be transitioned into valuable and effective support roles for intensive care unit (ICU) activity during pandemic surges in a way their non-clinical peers cannot. Out of professional obligation or the alternative of losing their job entirely, many nurses asked to shift to ICU felt they had no choice but to go along with it.

When there were not enough staff needed to cover all shifts, one shift turned into a two in a row, then three. Then it continued for weeks, turning into months. Many staff became sick with Covid-19. Many lost their lives trying to save those of others.

This was not fake news or a media hoax. These are real people; these were real lives. It should be no surprise to anyone why nearly one in five nurses have permanently left the field of healthcare. That said, new applicants to nursing schools have subsequently jumped as the market is already showing signs of correction.

Medical Supply Shortages and Declining Morale

The supply and equipment shortages that marked the first year of the pandemic can arguably be linked to the nursing shortage that persists today. Consider the working conditions of those staff repurposed for ICU support during surges.

Overall, the ICU is undoubtedly where the most vulnerable and unwell patients are found, even in the absence of a pandemic-type event. The environment is well-recognized as one of the most stressful areas of a hospital. These are patients that would die in the absence of the technological innovations used to keep them alive while their bodies heal. Adding insult to injury, those who stayed to care for patients faced shortages of supplies on nearly every level.

This impacted everything from basic disposables, such as masks, hand sanitizer, and gloves to complex medical devices such as ventilators for intubating patients struggling to breathe. N-95 masks were practically a form of currency—so scarce they had to be reused shift after shift, for weeks at a time, even after exposure to a confirmed positive case. For the disposables, this was only worsened by the stockpiling and subsequent price gouging on resale.

Unique Challenges of Ventilation Machines

The challenge with ventilation machines was quite different than that of disposable supplies. A ventilation machine used to keep a patient alive while intubated is extremely expensive to purchase. It costs anywhere from $30,000 to $50,000 per device and is designed to support one patient at a time. No hospital is incentivized to own excess inventory of such expensive machines beyond what historical demand has been for their use.

Furthermore, this high cost does not end with the purchase of the device alone. It costs money to use the ventilator continuously, primarily by way of the additional medications that must be used concurrently, such as sedatives and neuromuscular blockers via intravenous delivery.

Adding to this is the comprehensive level of training required to safely operate a ventilation device on a fragile patient and the requisite levels of medical oversight (e.g., the attending physician on shift) that go along with that.

Finally, such an invasive procedure simply adds more days to the average length of stay—some of which must be used to cover the weaning off from the machine. The capabilities of a modern ICU are simply incredible, but considerable resources are required to run it. Rural hospitals may only have one or two ICU beds active or none at all.

The Financial Impact of Increased ICU Activity on Healthcare Providers

It must be emphasized that ICU activity is not at all a high margin activity within the larger system. Part of this is due to the complexity of the infrastructure, specialized equipment, and specialized staff training that must be in place to be able to safely stabilize extremely sick or injured patients at a moment’s notice.

It is challenging to glean margin from large reimbursement in the face of equally large operating costs. For this reason, health systems and hospitals generally use appropriate structures to redistribute margins from the more profitable areas to ensure ICU viability is maintained.

Since we know this margin is not generated from the ICU, where does it usually come from? It will differ from one system to the next, but in general, outpatient care, imaging, and elective surgical procedures tend to have some of the higher profit margins in care provision.

Indeed, the hospital or healthcare system as a whole can remain financially viable by using a distribution structure for the extra margin, so long as the extra margin exists.

Therein lies the fundamental issue: Healthcare utilization right now is still lower than it was prior to the pandemic. The extra margin does not exist, because patient demand for clinical care—including the margin-generating services—remains stubbornly low, despite a recovery in most other areas of the economy. At the same time, the average cost of ICU-trained nurses is now higher than ever.

Looking to the Future of Healthcare Services

The worst outcome that may come of this is widespread access issues for patients, particularly those in rural or more poor areas of the country. The growth in ICU nurse wages is substantial, but the historical margin that was able to cover normal costs has not yet been restored.

How deep into the hole financially can a hospital or health system go while awaiting demand for the greater margin-generating activities within their health system to grow back? Will ICU operations specifically become even more limited due to their large overhead costs to run and maintain them, coupled with now higher than before wages from a smaller than ever pool of available workers?

These are only a handful of possible outcomes and only time will tell. Hopefully, the flaws revealed by the pandemic can lead to a more robust and flexible system of healthcare delivery that does not exclude those living in areas of lesser means. It will surely be critical to increase operational efficiency at any point possible.

Those in non-clinical roles may benefit from exploring opportunities to become more in tune with technological innovations within healthcare, historical barriers to implementation, and ways to measure value-added from a success.

Elizabeth Bradford Kneeland, MBA
Elizabeth Bradford Kneeland, MBA
Writer

Elizabeth Kneeland is a telemedicine and sleep medicine innovator living in Philadelphia. As the director for Crozer Health System sleep labs, she oversees the process, staff, and technology required to diagnosis a wide range of sleep disorders. Her career focus has straddled novel operational and financial modeling, as well as traditional academic research, providing her with a unique perspective in programmatic development and care optimization strategy.

Kneeland built the first for-profit telemedicine program for the University of Pennsylvania Health System in 2015. She also has helped build and scale sleep medicine startups in the U.S., as well as in China and Taiwan. She has co-authored publications in peer-reviewed journals on topics ranging from device validation to clinician-level educational interventions and has been an invited speaker at medical conferences throughout the U.S., China, and Taiwan.

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