No one yet knows what the full scale and scope – or the ultimate cost – of the virus will be to the economy or to the healthcare system. With increasing financial pressure across all types of reporting, it is critically important to promote stability in the marketplace.
Economists and experts are expecting a global economic recession, starting in 2020. If this is to happen, it means a major downturn in the economy, businesses to lose vast sums of money and commerce that will produce less product for two quarters – or six months – in a row, or more.
Policymakers around the world are in uncharted territory, with little guidance on what the expected economic fallout will be and how the crisis should be managed. So, what are the real economic effects of a pandemic?
The 1918 Flu Pandemic lasted from January 1918 to December 1920, and it spread worldwide. It is estimated that about 500 million people, or one-third of the world’s population, became infected with the virus. The number of deaths is believed to have been at least 50 million worldwide.
Research has shown that the pandemic, more than 100 years ago, caused severe disruption to businesses across most sectors of the economy and lead to a sharp and persistent fall in real economic activity. Economic recessions generally tend to result in decreased health care expenditures.
We are already witnessing signs of disruption across most sectors of our economy. As hospitals and health care workers focus on battling the Covid-19 outbreak, other health procedures – even essential, medical measures – are being put off. The potential timeline for disruption to a normal practice could last for significant time to come and until a vaccine is found.
It is expected that the pandemic will have a massive negative financial impact on physician and specialist practices – particularly on smaller, independent practices.
How well practices can recover from this base will be influenced by cashflow. Now is the time to review practice continuity plans and consider the impact that will stem from this pandemic.
- Start by analysing costs and differentiate between what’s discretionary and what’s essential for your practice and terminate non-mandatory costs immediately. Practices should evaluate their overhead expenses and devise strategies to reduce these on a semi-permanent basis.Staffing challenges can be addressed through a combination of reduced working hours, re-deployment, temporary salary cuts, bonus suspensions, furloughs, and in the direst of circumstances, layoffs.
- Take control of cashflow – it is the life blood of any business – liquidity is key. Monitor receivables against payables and reduce cash conversion cycle days.If fortunate enough to not yet be severely affected, practices could consider expanding hours to complete examinations and procedures that had been scheduled in the near future.
- Understand which areas of your practice drive the most value right now. Identify the strengths that have enabled your success to date. Now perhaps is the time to reposition your value to your patients.
- If possible, collect what is owed and stash it away for leaner times to come.
As the economy stumbles, physicians and medical care workers will panic and make bad choices – find assistance on which you can rely for sanity business checks.
Correia, Sergio and Luck, Stephan and Verner, Emil, Pandemics Depress the
Economy, Public Health Interventions Do Not: Evidence from the 1918 Flu (March
30, 2020). Available at SSRN: https://ssrn.com/abstract=3561560 or http://dx.doi.org/10.2139/ssrn.3561560
BH Groenewald is the Director of the Tax Shop