South Florida Hospital News
Sunday January 24, 2021
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January 2009 - Volume 5 - Issue 7
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Healthcare Financial Strategies in a Challenging Economy

Historically, hospitals have been seen as somewhat recession-proof. The current economic crisis is shattering that myth. Hospitals are facing multiple – and growing – challenges; fewer paying patients, increased numbers of uninsured and under-insured patients, declining Medicare and Medicaid reimbursements, and higher supply, energy and technology costs. Coupled with the current financial crisis, the overall impact is enough to keep hospital CEO’s and CFO’s up at night.

The most significant impact of the current crisis on many healthcare providers has been a decline in cash and investment values driven by market losses. At the same time, there has been a corresponding decrease in access to affordable capital due to tightened credit markets and a decline in the availability of credit enhancement tools. As the crisis continues, it will certainly impact hospitals and healthcare systems' ability to adequately fund capital investments and/or projects for future growth. In the near term, hospitals and health systems must re-evaluate their current levels of capital expenditures in an effort to preserve cash and liquidity. Longer term strategic plans must be revisited as there are significantly less resources to fund strategic investments.

As the economy continues to worsen and as more people become unemployed or are concerned about the stability of their jobs, we should expect to see a larger decrease in preventative, elective and diagnostic procedures. Patients with insurance may defer treatment or wait until their problem deteriorates to the point it must be addressed. This could impact procedures that are among the most lucrative to hospitals such as laser vision correction and cosmetic surgeries, knee replacements, hernia repairs and weight-loss surgeries.

At Broward Health, we are seeing an increase in the number of uninsured and underinsured patients. We have experienced a 12% increase in the number of uncompensated admissions during the first four months of our fiscal year as compared to the same period a year ago. As unemployment rates rise and employers search for ways in which to decrease their costs, we can expect to see continued increases in the number of uninsured or underinsured patients.

Already, studies show that health insurance is steadily becoming less comprehensive. With rising deductibles, many people are facing substantial out-of-pocket costs for healthcare before their insurance begins to contribute. These patients are utilizing the same resources but providers are experiencing a downward impact on revenue and an increase in the level of bad debt.

Hospitals that rely heavily on private insurance to subsidize certain services are going to have issues due to the increases in the number of uncompensated patients and decreases in reimbursement from governmental payers. The loss of profitable procedures in a tough economy is especially difficult since hospitals often use these funds to subsidize the charity care that is increasing as a result of the slow economy.

In order to offset these losses hospitals and health systems need to put their focus on the basics: management of controllable expenses, process improvement initiatives to increase efficiency revenue cycle improvement and delivery of high quality services with a focus on the elimination of "waste".

Economic instability in general has had an impact on many facets of the healthcare market. The decreased availability of capital through new bond financings means a hospital's credit rating is more important than it has been for the last several years. As such, hospitals need to implement measures to maintain their credit rating. This also reinforces a disciplined approach to the prioritization of capital investments as an imperative.

On the bright side, there will always be a demand for the services that we provide. We can learn from the current environment that a consistent and continual focus on strong operating performance under any market condition will position us better to deal with the challenges presented in a time of economic instability.

Dawn Javersack, Chief Financial Officer, Broward Health, can be reached at (954) 355-4883 or djaversack@browardhealth.org.
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