Accounting and Financial Reporting

How hospitals can preserve cash amid rising costs, crashing revenues brought on by COVID-19

April 22, 2020 5:56 pm
  • Revenue from delayed elective procedures is more likely than lost primary care revenue to show up after the COVID-19 pandemic abates, a hospital leader says.
  • Hospitals must prioritize their expenditures, given revenue decreases.
  • Vendors may be willing to renegotiate payment terms during the crisis.

Like most hospitals across the country, 25-bed Henry County Health Center in Mount Pleasant, Iowa, has seen revenues plummet since March 16, when the COVID-19 pandemic halted elective procedures. As a result, gross revenues are off by 50% from the same period last year, said CFO David J. Muhs.

“Right now, what we are planning is a full shutdown of elective procedures until the end of May,” he said.

Meanwhile, 49-bed Fort Memorial Hospital in Fort Atkinson, Wisconsin, has seen gross revenues fall by 60% since March 23, when the state’s “safer at home” order canceled nonessential business activity for at least a month. James Nelson, senior vice president, finance and strategic development, thinks some revenue from elective procedures is delayed rather than lost. But the missed primary care revenue is gone forever.

“The elective procedures will filter back in over a couple of months” after the shutdown ends, he said. “But for primary care, we gave it away for free through our nurse triage line or patient portals or phone calls. We’ll never see any net revenue for it, but the cost structure didn’t really change.”

Especially among smaller hospitals, the need to preserve cash is becoming more acute amid plummeting revenues and rising costs. Stakeholders are getting creative in search of solutions.

Organizations redeploying staff, seeking payroll relief

At Henry County Health Center, Muhs is watching expenses carefully. A construction project was halted because the work is considered a nonessential service, but the pause is reducing cash outlay at a good time. Capital purchases are delayed for now.

“We did secure a line of credit with a local bank, and I would suggest everybody look at that as another tool in the toolbox in case you need help making payroll or to get by for a couple of weeks,” he said.

Both Muhs and Nelson are committed to keeping their staffs intact as much as possible despite the dramatic reduction in volume.

“If we were a part of a major [patient] surge, we would need all hands on deck,” Nelson said. “So we’ve been keeping our employees but redeployed them. We have a radiology technician checking temperatures and a physical therapist serving as a patient transporter. As a result, we’ve got a pretty heavy operating expense that is continuing.”

Henry County Health Center has furloughed a few employees, whom it hopes to bring back after the crisis passes. Muhs says he expects departmental actions to generate some payroll relief. For example, the health system employs five centralized schedulers, but only one — who also serves as the clinic receptionist — is needed on-site.

“Of the four who went home, two are taking unemployment for two weeks while the other two work from home, and at the end of those two weeks they will flip,” he said. “I’m seeing departments make decisions like that because they know we’re going to be in for some tough times.”

3 steps to mitigate cash-flow issues

Merlyn Knapp, FHFMA, CPA, president of Rebound Health Resources, has more than 40 years of experience managing turnarounds of distressed hospitals and health systems. Among his roles as interim or permanent CEO or CFO of various organizations was a stint in 2016-17 as CFO at Southern Regional Medical Center in Riverdale, Georgia, where he helped turn around a hospital that had been scheduled to close.

1. Prioritize how money will be spent. Review the accounts payable list to identify which vendors are essential at the moment. “You’re going to have to get an idea of who you absolutely have to pay and the ones you can put off for a while,” Knapp said.

2. Ask essential vendors for help to get through the cash-flow crunch. Suppliers of vital goods and services are often huge companies that have the financial wherewithal to be flexible with their customers, Knapp said. “My experience has been that the vendors are willing to work with you if you ask them, but they’re not going to volunteer,” he said.

Start by contacting your account representative and, if necessary, keep going higher up in the organization until you find a member of the accounts receivable staff or even an executive who will discuss your situation. Ask for an extended payment period, discounted interest or other concessions that keep your account from being considered delinquent.

3. Ask your insurance representatives to help. Insurers that provide coverage for property and other risk areas may have flexibility that helps you manage cash flow. “In many cases, insurance companies have the ability, for short periods of time, to grant interruption in the premium or at least a reduction in the premium on the idea it would be made up later,” Knapp said.

If your organization has business interruption insurance that protects against losses resulting from hurricanes and the like, check with the insurer about whether coverage extends to losses from the COVID-19 crisis. If it does, file a claim for documented business losses.


googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text1' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text2' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text3' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text4' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text5' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text6' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text7' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-leaderboard' ); } );