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Natural disasters create devastation that lasts long after the event passes

Natural disasters such as the hurricanes that battered Puerto Rico, Florida and Texas, and the wildfires that ravaged the western US, can wreak havoc on health systems and manufacturing operations.

During a natural disaster, health systems face closure, chaotic revenue cycle operations, destroyed or damaged physical assets and displaced workforces and patients (see Figure). Once the event is over, systems face possible credit downgrades, reduced operations and capital limitations. Pharmaceutical supply chains can be disrupted by offline manufacturing operations, leading to product shortages, labor shortages and lab testing issues. Health systems and pharmaceutical companies with strategies at the ready can increase the pace of recovery and avoid making premature decisions that could do harm in the long term.

The physical results of disaster are often the most evident. Facilities may be abandoned because they’re destroyed.1 Damaged buildings and assets can become targets for theft.2 Repairs can lag as claims move slowly.3 Health systems can protect against significant damage by shoring up physical resources. After Tropical Storm Allison caused significant damage to Texas Medical Center in Houston, for example, the system built a network of submarine-style floodgates to protect physical assets. “Even though we had streets filled with water, none of our facilities were affected by [Harvey’s] flooding,” Bill McKeon, president and CEO of Texas Medical Center, told PBS. McKeon credited the hospital’s preparations for allowing operations to continue.4

Natural disasters can disrupt financial operations by delaying revenue cycle activities, though the effect can be mitigated. The CHRISTUS Health Southwest Louisiana system was able to avoid significant disruption because it had moved back-office functions out of state.5 After Hurricane Sandy caused a drop in patient volume, NYU Langone Medical Center underwent a credit review. Thanks to planning, the system was able to quickly resume services, and its credit rating was maintained.6

Planning for clear lines of communication and altered care standards that occur when disasters lead to diminished resources can mitigate legal and reputational damage. Hospitals that do suffer damage must handle patient concerns about institutional viability and continuity of care. After Hurricane Katrina, over 200 lawsuits were filed against providers alleging liability for patients’ deaths and suffering.7

Implications

Bolster physical and emergency resources

Consider taking extra measures to protect the physical plant and keep care going, such as placing power generators and other critical systems in an underground concrete location or placing backup systems in non-vulnerable regions. Have a virtual backup to traditional services, understanding that virtual care can provide medical assistance in the event of damaged facilities. Remember that disasters can cause population shift, so consider capital planning carefully. Evaluate any insurance policies, including coverage, period of indemnity, limitations and deductible to ensure they meet the consequences of a major event.

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Conduct scenario planning well in advance

Determine current levels of resilience and start planning for what comes next. Prepare for a potential loss of market share in the wake of serious damage, and consider the impact of a credit rating downgrade should the facility not have the same population makeup after a major event. Hospitals should aim for ample days of cash on hand to remain financially stable during and after a disaster.

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Have a public relations plan

Form a plan to handle the disaster’s aftermath with patients, employees, insurers, vendors, credit rating agencies, and investors and creditors as critical audiences. Plan to combat negative or false information on social media during and after a disaster, as patients and employees may be scared off. Establish positions that will allow for growth and prove immune to a disaster’s effects, such as regular community engagement events or patient-family advisory councils.

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1 Leslie Eaton, “New Orleans Recovery Is Slowed by Closed Hospitals,” The New York Times, July 24, 2007, http://www.nytimes.com/2007/07/24/us/24orleans.html

2 Beth Jones Sanborn, “Hurricane Harvey Devastates Critical Access Hospital, Forces Closure,” Healthcare Finance News, Aug. 28, 2017, http://www.healthcarefinancenews.com/news/hurricane-harvey-devastates-critical-access-hospital-forces-closure

3 Susan Morse, “When Disaster Strikes: CFOs help hospitals recover after Joplin tornado, Hurricane Sandy,” Healthcare Finance News, Sept. 2, 2015, http://www.healthcarefinancenews.com/news/when-disaster-strikes-cfos-help-hospitals-recover-after-joplin-tornado-hurricane-sandy

4 Bill McKeon, “How Houston hospitals prepared for Hurricane Harvey,” interview by Miles O’Brien, PBS Newshour, Aug. 29, 2017, http://www.pbs.org/newshour/bb/houston-hospitals-prepared-hurricane-harvey/

5 Rich Daly, “Hospitals Expect Financial Impacts from Harvey,” Healthcare Financial Management Association, Aug. 31, 2017, http://www.hfma.org/Content.aspx?id=55811

6 Moody’s Investor Service, “Moody’s places NYU Hospitals Center’s (NY) A3 ratings under review for possible downgrade as impact of Hurricane Sandy is assessed,” Nov. 20, 2012, https://www.moodys.com/research/Moodys-places-NYU-Hospitals-Centers-NY-A3-ratings-under-review--PR_260484; NYU Langone Health, “Moody’s Confirms NYU Langone Medical Center’s A3 Credit Rating” March 18, 2013, http://nyulangone.org/press-releases/moodys-confirms-nyu-langone-medical-centers-a3-credit-rating

7 Sheri Fink, “The New Katrina Flood: Hospital Liability,” The New York Times, Jan. 1, 2010, http://www.nytimes.com/2010/01/03/weekinreview/03fink.html?mcubz=3

 

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