The financial profiles of US not-for-profit hospitals are stronger than they were three years ago, says Moody’s Investors Service vice president Daniel Steingart. In his summary in Healthcare Quarterly, Steingart notes that “stronger financial footing will undoubtedly help hospitals mitigate the headwinds associated with changing and more stringent reimbursement models.” (“Not-For-Profit Hospitals: Financially Stronger as Cash Flow Growth Returned to Normal Levels,” Healthcare Quarterly, Moody’s Investors Service, April 18, 2016)
Key financial improvements include:
- Operating cash flow growth, which has returned to normal levels
- Improved leverage ratios including debt to cash flow and maximum annual debt service coverage
- Cash reserves increases
- Stronger balance sheets, on average (recent market volatility has tempered investment performance most recently, however)
As noted in last week’s summary of preliminary medians, strong operating performance resulted from significant gains in the number of people with insurance, growing patient volumes and sizeable reductions in bad debt expense. Hospitals in states that expanded Medicaid coverage also saw lower bad debt expense. “The improving economy, related job gains and stronger patient volumes also contributed to the sector’s stronger, performance,” Steingart said.
Many larger systems have focused on lowering costs in order to prepare for continued reimbursement pressure. Some of the initiatives noted in Mr. Steingart’s article include:
- Improving productivity and creating efficiencies to reduce ongoing costs
- Consolidation of shared services and back office functions in a single site
- Operating improvements and synergy benefits by centralizing and improving revenue cycle, and cutting pharmaceutical and retail pharmacy costs
Initiatives related to updating electronic medical records (EMRs) are widespread. EMRs may help hospitals perform better under risk-sharing contracts with Medicare and commercial insurers. These systems often streamline billing, coding and eliminate redundancies. But implementation costs are high and can reduce margins while the system is installed, tested and operationalized.
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