A new survey from HFMA's Healthcare Financial Pulse project shows how hospitals are taking action against the economic impacts of the recession.
A majority of financial executives who responded to the survey said their organizations experienced negative fallout from the recession in the second half of 2008, including declines in nonoperating revenue, patient revenue, and days cash on hand. In response, they are reducing capital spending, renegotiating vendor contracts, freezing salaries, reducing staff, and developing contingency budgets.
HFMA's Healthcare Financial Pulse project, which is sponsored by McKesson and RelayHealth, is identifying problem areas for healthcare organizations in these challenging times and recommending steps hospitals can take to address these problems. This issue of HWYTK defines four keys to success that hospitals are using to combat the economic downturn.
Leadership and Planning
Given the many uncertainties facing health care today, healthcare leaders are modeling the impact of different economic and financial scenarios and developing contingency budget plans.
Respondents to the Healthcare Financial Pulse survey indicate that they are using a variety of triggers that will put contingency budgets into effect. A common trigger is decline in patient revenue or volume by a specified percentage, typically in the range of 5 percent to 20 percent. Other triggers include a shortfall below operating margin targets, consecutive months of undesirable performance, or failure to meet debt covenants.
Providers are also defining different strategies depending on the severity of financial conditions they face. "Good sense" strategies define prudent measures that make sense in any economic environment. "Riding out the storm" strategies implement difficult but possibly temporary expense reductions. And "hard choice" strategies identify permanent expense reductions that are necessary to adjust to lasting business downturns or especially challenging financial situations.
Leaders should also be aware of potential pitfalls in responding to the economic downturn. A new resource on HFMA's Healthcare Financial Pulse web site explores legal implications of the financial meltdown.
Cost and Quality
Healthcare organizations must keep their focus on value: identifying improvements that enhance quality while driving down costs. Hospitals are approaching this issue strategically, focusing attention first on processes that are high-cost, high-volume, or prone to problems. They are asking "why do we do it this way?" questions to eliminate unnecessary steps. And they are examining ways to better leverage partnerships and technology to increase efficiencies and shore up core competencies.
Reductions are being sought in both labor and nonlabor costs. Supply expenses are a major focus, and hospitals are aggressively negotiating with vendors for discounts and emphasizing bulk purchases that come with a price break. On the labor side, hospitals are replacing clinical positions only if volumes justify a new hire and are holding managers accountable for staffing correctly, according to census.
A case study in the April issue of hfm magazine, now a featured resource on HFMA's Healthcare Financial Pulse web site, describes how Lee Memorial Health System in Fort Myers, Fla., developed processes for forecasting nurse staffing needs. The system saved more than $11 million in one year alone by eliminating the need for agency nurses.
Preserving Cash
As healthcare organizations work to preserve cash, they are pursuing a dual strategy of protecting cash flow and increasing efforts to protect or expand volumes.
Improved billing and collection is integral to cash flow protection. The focus is clearly on the front end of the revenue cycle with registration, bad debt reduction efforts, and the possibility of COBRA opportunities resulting from the economic stimulus package. HFMA's analysis of the recent SCHIP legislation and the American Recovery and Reinvestment Act highlights how COBRA premium assistance and other recent actions by Congress might impact providers.
Hospitals are working to protect or expand volumes by aggressively marketing their services to outlying physicians and hospitals. They are also asking all revenue departments to prepare business plans on growing revenue and volume and are instituting monthly reviews to monitor progress in meeting these plans.
Capital
With access to capital markets remaining tight, and credit ratings more important than ever, hospitals are developing financial metrics and modeling to benchmark their organization against rating agency medians. They are also implementing formal processes to determine or reevaluate their organizational risk tolerance and are considering alternative forms of capital financing as market conditions change.
HFMA's Healthcare Financial Pulse project offers a variety of resources on accessing capital sources and allocating scarce resources. On April 28, an audio webcast will provide hospital CFOs and planning directors with a process for getting the most value out of current capital projects, as well as making tough decisions about whether to go forward with planned projects.