Turmoil in the markets and the looming threat of recession pose significant risks for healthcare organizations. HFMA is committed to keeping our members up to date on the implications of this crisis for healthcare finance. We will continue to update this page with information and resources as the situation unfolds.
A Message from Richard L. Clarke, President and CEO of HFMA
“May you live in interesting times.” Although it sounds good at first hearing, this old proverb was meant as a curse. Interesting times are unsettled, challenging, and often harsh and unpleasant. We’ve all felt unsettled and challenged in recent days as financial markets have swooned and credit markets have frozen. Indicators point to an imminent, deep recession that may already be upon us. These really are interesting times.
For many healthcare organizations, the times got interesting before the current market turmoil. In 2003, when HFMA began its series of Financing the Future reports-(see article) , a widening gap between “have” and “have not” healthcare organizations was already apparent. The “have” organizations have the size, revenue diversity, and balance sheet strengths to support capital and other investments. They generate adequate cash flows and have had access to capital markets to support strategies of renewal and expansion. The “have not” organizations--as much as one-third of all hospitals, according to our research--struggle to meet critical capital needs, and have had limited access to capital markets. They have relied on cash flow from operations, grants from private and public organizations, bank lines of credit, and philanthropy to keep their doors open.
In recent years, the financial markets flooded the economy with a glut of capital. This provided “have” organizations with ready access to very low-cost capital, enabling them to stretch their dollars further. And it kept the economy going, which helped the “have not” organizations keep their operations going. In both cases, important services to their communities were maintained and often enhanced.
Today, both the “haves” and “have nots” face interesting times. The capital markets have become constrained for all organizations. All but the highest rated organizations will find limited appetite for their debt (or equity, if your organization is investor-owned), and liquidity instruments or credit enhancement approaches will probably be unavailable. The credit crunch, if it continues, will starve organizations in need of capital. Deteriorating economic conditions will squeeze cash flows. Philanthropic contributions will likely decrease. What can be done?
First, it is critical that healthcare organizations act responsibly. A lack of responsibility on the part of many (capital markets, government, businesses, and consumers) has contributed to this crisis. As hospitals face difficult decisions in the coming months, they must strive to ensure that their decisions reflect the best interests of their communities. In doing so, hospitals will be able to retain the special position of trust they occupy in their communities at a time when trust in so many other institutions has been eroded.
Second, recognize that we may be at a “tipping point” that will prompt a restructuring of the healthcare industry. Healthcare leaders must consider the future of their organizations. Should they attempt to acquire or be acquired by another entity? Should they change their service orientation away from capital intensive service delivery? May they have to consider closure? In the end, these decisions must be tempered with the realities of capital access and effective service delivery, but they also must be focused on what best serves community needs. Trust is enhanced when actions support the caring mission.
Third, remember that others are working on your behalf. The American Hospital Association, for example, is speaking out on the national importance of a stable, functional healthcare system at a time when families and communities are under strain. HFMA is spearheading an effort for healthcare payment reform-(see article) to ensure that payments reflect the actual costs of providing high-quality, efficient care to your communities, access to care by the uninsured, and the costs of other societal benefits that hospitals provide. HFMA will also support you by carrying the message that dollars invested in healthcare organizations generate a significant return for the communities they serve, and are critical to ensure that the organizations can continue to fulfill their vital public mission.
Finally, keep doing what you have been doing--striving to ensure that your organizations are providing high-quality, safe services in a cost-effective manner. These interesting times did not originate in the healthcare sector, nor in the municipal bond markets. But these challenges are before us and you have an important job to do. On our part, we pledge to continue to serve you with the networks, resources, and information you need to perform at your best in these difficult, interesting times.