Principles and Tools for Provider Survival in an Uncertain Economic Environment
Todays US economic environment forces healthcare providers to make decisions embedded with substantial uncertainty and risk. Factors at the macro level negatively affect the availability of both public and private funds to pay for healthcare services. The national budget deficits set records in years 2003, 2004 and 2005 ($375B, $413B and $317B respectively
1) contributing to a national debt of $7,933T in 2005
1. Year 2011 marks the retirement of the first baby boomers at age 65. It also underscores a trend of aging US population where 20.7% of it is projected at age of 65 or older in year 2030
2. This in turn may trigger a subsequent reduction in public programs which depend on the size of the younger generations and provided 45.1% of healthcare funding in 2004
3.
Reimbursement is, therefore, the top and growing concern of hospital administrators. An AHA report of hospitals in the DATABANK program shows a decrease in aggregate total margins in the first quarter to 4.2% in 2003 from 5.8% in 2002
4. Furthermore, in the beginning of the decade, S&P considered bond rating downgrade to a number of health systems and Moody Investor Service forecasted, in mid 2003, greater credit volatility for not-for-profit providers4 making hospital access to capital even harder.
Under such circumstances, maintaining capital, the lifeline of any organization, becomes imperative for survival. Any such effort begins with a strategic plan and its derivative – the strategic financial plan. The strategic financial plan offers answers to questions such questions like how much cash to have on hand, how much debt is affordable and profitability/margin targets and others. With a strategic financial plan in place, the hospital should be able to quantitatively reason on ways and means to achieve its goals and develop measurable tactics.
It is within this context that the deployment of Key Financial Indicators (KFI) and routine and timely reporting of volumes become crucial. KFI measure a broad range of volumes, are significantly affected by location, payer mix, tax status, and similar factors and are uniquely defined by and for each organization. Daily KFI may measure productivity, length of stay, gross charges, visits, etc. KFI are also developed for weekly (rare), biweekly (productivity and payroll, for example), monthly (payer mix and average length of stay, for example) quarterly and annual monitoring. But KFI are effective in supporting an organizations effort to fulfill its mission only when coupled with an efficient and accurate data collection systems and processes and with the practice of accountability across the organization.
A majority of the 5,600 hospitals in the US demonstrate 2% or lower margin/profit. For these, decisions embedded with uncertainty introduce enormous risks. The deployment and persistent monitoring of KFI may significantly mitigate risks and enable survival. For those that display persistent operating losses, an implementation of a financial strategic plan is a beginning. Derived tactics, corresponding KFI, persistent monitoring of KFI and uncompromising practice of accountability may result in a successful turnaround effort.
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