Cash preservation is a key action item identified in The Financial Health of U.S. Hospitals and Health Systems, an HFMA survey of more than 300 healthcare finance executives around the country that gauges the impact of the economic downturn on hospitals and health systems.
The survey found operating margins under pressure on a variety of fronts. Almost 40 percent of respondents have seen a substantial increase in the cost of debt, with the pain being felt by both financially strong (29 percent) and challenged (43 percent) organizations. Patient volumes are trending lower, with more than three-quarters of mid-sized hospitals (301-500 beds) noting decreases in inpatient volumes. Sixty-three percent of respondents anticipate that bad debt will have a negative impact on their financial performance in the coming year, with 15 percent of this number predicting that the impact will be severe. As a result, 60 percent of the respondents anticipate a decline in total margin.
Hospitals should focus on three key actions. First, they must convey the urgency of the current situation to the board, the community, and other stakeholders. Second, they must initiate a systematic effort to become low-cost, high-quality providers. Third--and most immediately--they must preserve cash to carry them through this critical time of market volatility and economic downturn.
Reducing Bad Debt
As the Financial Health survey indicates, bad debt will continue to have a negative impact on financial performance as the recession deepens. Strategies for Reducing Bad Debt , a new educational report from HFMA, offers tips on mitigating this impact and improving cash flow.
The report, which was sponsored by Emdeon, emphasizes the need to shift revenue cycle focus to the front end, making sure that discussions of a patient’s financial responsibilities occur at scheduling. Patients appreciate the up-front communication, and providers see welcome relief to the bottom line. Online tools that registration representatives can use to automatically verify coverage and demographic information for insurance patients can also help stem bad debt increases.
Many hospitals are going the extra mile to help patients with financial issues, providing counseling to help assess patients’ financial needs and their eligibility for public or charity assistance programs. Simplifying the payment process--and offering customer-friendly strategies such as special discounts, payment plans, and online payment options--can also help.
Supply Chain Cost Management
By taking a close look at the supply chain, your hospital may be able to reap the benefit of significant cash savings. El Camino Hospital of Mountain View, Calif., implemented new supply chain technologies and processes to improve its cash flow and reduce costs by $3 million in the first 18 months and $2.5 million annually.
El Camino’s experiences in implementing its supply chain management system yielded several lessons learned. Having a dedicated program manager skilled in supply innovation has played a significant role in the success of the program. So has a continued focus on ensuring that supply chain investments have a clear and measurable ROI. By leveraging supply chain technology already in place, El Camino was able to realign supply stations to meet the real-time needs of nursing units. And by ordering the lion’s share of supplies through a single supplier, the hospital was able to reduce freight and administration costs.
The El Camino case study appears in the December 2008 issue of HFMA’s Healthcare Cost Containment newsletter, a vital resource in today’s tough economic environment. Subscribe today.
Alternative Capital Funding Sources
With new capital more difficult to access and increasingly expensive, hospitals must make tough decisions about capital spending priorities. A number of alternative capital funding sources can free up cash while allowing necessary capital investment.
Joint ventures--especially those with third-party investors--allow a hospital to partner with other providers while preserving cash. Asset sales and leasebacks can have a twofold cash benefit, providing an injection of liquidity from the proceeds of the sale and saving money in capital expenditures and maintenance costs. A leasing arrangement with an equipment leasing company or vendor means that a hospital doesn’t need to commit its own capital. These options and more are explored in “Navigating Today’s Opportunities for Capital,” an article by Karen Sandrick in the December 2008 issue of hfm magazine (free to members, or join HFMA today.
Surviving today’s financial turbulence is the theme of the 2009 HFMA Executive Summit, March 8-10, in Phoenix, featuring a keynote address by former Southwest Airlines CEO Howard Putnam. Sessions on driving productivity through benchmarking, overhauling your hospital’s debt program, and better managing risk in today’s volatile environment will help you lead your organization through these turbulent times. Learn more.