Medical practices struggle to recover from lockdown

30 Jul 2020

Hundreds of medical practices are on the verge of collapse because of a fall in the number of visits due to the Covid-19 pandemic. The number of cases in South Africa continues to climb at a rapid rate - and while those on the front line are working tirelessly to treat those affected by the health crisis - others such as general practitioners, specialists and dentists have seen a significantly reduced demand for their services. This has led to a cash crunch, forcing some providers to scale back their businesses and lay off health workers.

Coenie Smith

Recent South African Medical Association (Sama) statistics reveal that private practices have on average seen a 60% decline in patient numbers during the hard lockdown. Although patient numbers have increased since, they are still 40% to 50% lower than normal. In addition, the Council for Medical Schemes earlier this month declined a proposal by private health sector practitioners that would see medical aid schemes tap into funds to help them stay afloat.

Lockdown was especially harsh on businesses that require close contact, like dental surgeries, while others that have been able to remain open have found that operating costs such as rent, staff overheads and additional cleaning materials placed a significant demand on resources. An overall decrease in public confidence in making visits and the reduced capacity to adhere to social distancing measures in small spaces have also affected private practice owners.

Financial plans

As lockdown eases, monitoring and protecting cashflow should be a priority for practice owners. They need to revise their financial plans to ensure ongoing liquidity of a practice in the event of less clinical revenue (for example, due to cancelled elective surgery or fewer outpatient visits) and whole or partial closure of practice locations. It is advisable to develop a contingency plan based on estimates of minimum cashflow to stay afloat. Review existing loan documents and financial covenants to determine if a slowdown of business or collections could trigger a default situation. Regularly touch base with third parties, such as vendors, landlords and creditors, to discuss reasonable accommodations for cashflow disruptions.

In addition to the decrease in volume and revenue, there are increases in expenses related to Covid-19, such as technology to support telehealth needs, remote providers or staff, and personal protective equipment (PPE). The pandemic has created worldwide shortages of essential medical supplies, including PPE, which in many instances are now sold at a marked-up price. Take stock of what supplies your practice has now and what cashflow should be devoted towards trying to stock up for the months ahead.

Understanding your insurance coverage is also vital. Your practice may or may not be protected by its business insurance policy for Covid-19-related liabilities, and ascertaining your risk is a key element to making other business and operational decisions. Contact your broker for a complete copy of all insurance policies, refer to actual government emergency orders or decrees (to the extent that they affect your practice operations), and track your losses and expenses as you will need a record to make a claim.