HOSPITAL CREDIT RATINGS CONTINUE TO SLIDE

A recent article in H&HN Magazine ,online, noted the continuing decline of hospital credit ratings due to the economic crisis. The author, Randy Edwards, cited several experts that were interviewed for the article as giving health care administrators the following advice:

• pay attention to day-to-day business as there are new revenue sources and savings to be found


• shore up physician relationships - through effective recruitment and retention strategies

A medical accounts receivable program from Sun Capital HealthCare, Inc. can be a financial solution to reimbursement delays while at the same time ensuring a healthier balance sheet that is more attractive to the credit markets. Because SUN's program is not a loan, the provider can utilize its receivables as a cash flow solution for generating working capital rather than as an obstacle to growth and proftability. Additionally, the flexibility in SUN's MAR funding program allows the provider to use the funds to follow the above advice.

With the healthcare marketplace becoming increasingly competitive, a provider's survival as well as growth depends on an effective financial strategy and using all the financial tools available.

"AN EXCELLENT INVESTMENT"

This is the title of an interesting article that appeared in the May 2008 issue of HHN Magazine by Michael Bilton. It is not about finances, although in a way it ultimately is. Rather, the author points out that an "annual community health assesment" can be a valuable tool for a hospital's planning. By understanding what the healthcare needs of the community are, a healthcare executive can plan a strategy and allocate financial resources towards those programs for which there is the greatest demand in the community.

Identifying the needs of your marketplace so that you can target your services towards meeting those needs is one of the basic principles of running a business. Borrowing this strategy from the business world can enable healthcare executives to better develop service lines and prevention programs that will increase their market share and enhance their financial performance.

And when it comes to financial performance, healthcare executives are increasingly using another tool used in the general business world - accounts receivable financing. The unique medical accounts receivable funding program from Sun Capital HealthCare, Inc. has proven itself to be a valuable tool for healthcare organizations in fiscal stress as well as those poised for growth and profitability.

NOT JUST FOR THE FISCALLY CHALLENGED

MAR [Medical Accounts Receivable] funding is not just for the fiscally challenged healthcare providers. As healthcare leaders and financial executives look for more tools to add to their financial toolbox, they are realizing that they can use the flexibility of a Sun Capital HealthCare MAR funding program to fund long term growth and expansion.

There are several strategic reasons for healthcare executives to utilize their third pary claims [or A/R] as a debt-free funding source.

1. Accelerate cash flow - MAR funding provides an immediate infusion of cash without the lengthy application process of banks.
2. Provider is under fiscal stress - while cash flow is often an obstacle to growth or profitability, MAR funding turns a non performing asset, third party claims, into working capital that will yield an internal rate of return.
3. Realize cost savings from operations - MAR funding allows providers/suppliers to take advantage of cash discounts and/or quantity discounts and/or other savings typically offered by vendors. Other improvements in operations that typically are outside the context of capital budgets and/or new marketing programs to generate additional revenue are some of the other ways that can yield cost savings at the operational level.
4. Protect credit ratings for bond issues - by using MAR funding and not adding debt to the balance sheet, substational savings on long term interest costs could be realized by maintaining or improving the provider's credit rating.
5. Reduce costs of capital expenditures - by using MAR funding to finance otherwise deferred capital projects or those "below the cut-off line" of current capital budgets, providers could take advantage of negotiating costs with suppliers and vendors at today's prices rather than at an increased cost in the future.

In the current economic climate that is fiscally challenging healthcare providers, one lesson to be learned is to not put all your financing options into one basket. Another lesson is to use all the funding tools, including MAR Funding, available in your financial toolbox to implement your strategy for growth and expansion.

HealthCare Finance:101

Traditionally, finance courses, whether in Business School, an MBA program, or a healthcare management course, teach that there are two ways to raise needed capital for your facility: debt or equity financing. But in the increasingly complex financial marketplace with its many demands for capital, these two methods may not be sufficient for the financial needs of the healthcare industry.

The commercial sector has long used a third funding tool, more so around the world than in the United States. It is projected that as much as 60% of financial transactions around the world use "commercial factoring" as a funding tool in their financial strategies while in the US it is only about 9% and in the healthcare industry it is less than 1%. The healthcare industry has been late to add this tool to their financial planning even though many international transactions, as well as many of the largest US corporations, have found it a very valuable funding strategy.

Sun Capital HealthCare, Inc. is changing that. Their MAR [medical accounts receivable] Funding program has been specifically designed and exclusively offered to the healthcare industry. It has taken the best features of commercial factoring, that it is debt-free and uses a non-performing asset - the provider's accounts receivable [i.e. claims] - to provide needed working capital, and applied it to the healthcare industry.

Because of Sun Capital HealthCare's intimate knowledge of the healthcare industry, including understanding such issues as reimbursement, coding, claim valuation, and provider contracts, all within a heavy regulatory context, they have developed a funding program that uniquely meets the needs of the healthcare industry. By adding Sun Capital HealthCare's MAR funding program to their financial mix, healthcare providers and suppliers have both emerged from fiscal stress as well as successfully expanded their business.

In today's economic environment, the healthcare industry is under increased financial pressure. Sun Capital HealthCare's MAR funding program is a proven tool that healthcare executives should be adding to their financial tool box.

MAR Funding: Not Just A Tool For The Financially Stressed

Having just returned from the HealthCare CFO conference in Florida, a number of interesting and creative strategies emerged from our one-on-one meetings with leading financial executives.

The current liquidity crisis was the main issue healthcare leaders were concerned about. The financial pressures were not only severely impacting the poorly performing hospitals that were in fiscal stress, but even the large well financed and well performing hospitals were increasingly concerned about where they go from here. The impact of rising costs and reduced liquidity in the bond market were of major concern for two major reasons:

Where was the hospital going to get its future capital funding from if the bond markets dried up?

Further, if the hospitals go to the banks to increase their credit lines and take on more debt, how was this going to affect their credit ratings and subsequently their interest expenses?

After discussing with one hospital CFO, in a successful and profitable hospital, how a medical accounts receivable [MAR]program from Sun Capital HealthCare works, he identified a very effective role that MAR funding can perform within his overall financial strategy. Instead of taking on additional debt that could affect his financial ratios and increase the costs of his next series of bonds, he suggested that he could use a MAR funding program to protect his current AAA bond rating. Additionally, the costs of MAR funding would be far less than the increased costs associated with any drop in his bond rating over a 14 or 20 year bond issue.

This is just another reason why more and more healthcare financial executives are adding MAR funding to their financial strategies. Given the financial conditions in today's healthcare markets, MAR funding is no longer just for the financially distressed hospitals. This debt-free funding tool can be used in many different ways to protect and enhance the financial resources of healthcare providers.

IMMEDIATE WORKING CAPITAL

The current headlines, focusing on the credit crunch resulting from the mortgage crises, highlight the financial squeeze that is being put on hospitals so that they can meet their ongoing overhead costs. What is often overlooked in the current dialogue is the costs associated with missed opportunities to grow or expand revenues - through acquisition, expanding facilities, adding new services, purchasing new equipment, upgrading systems and even engaging in a more aggressive marketing approach.

Having access to immediate working capital that allows the healthcare provider to take advantage of opportunities now is also critical to long term growth and survival. Medical Accounts Receivable [MAR]Funding is the funding tool that allows CFO's to access immediate working capital to take advantage of these short term opportunities that translate into long term gains. Once a MAR Funding program is set up, the provider does not have to go through a lengthy application process or time consuming paperwork that can unnecessarily delay the provider's ability to act quickly. With MAR Funding, since it is not a debt financing vehicle, the provider merely submits the medical receivable to the funding source, such as Sun Capital HealthCare, Inc., and can get a cash infusion within 24-48 hours of submission of claims.

Financial Tools Available to Protect Your Business From Fluctuations in Revenue Cycle

The question of which financial tool to use in order to overcome fluctuations in revenue cycle arises very often as providers strive to keep up with pay overhead commitments and perhaps even have a few dollars left over to feel their business is not "hand to mouth."

The operative phrase shown above is "fluctuations in revenue cycle." There is no way to address this issue without evaluating the financial vehicles available to medical businesses and ascertaining whether these financing tools actually move concurrently with the regular occurring billing/overhead cycle (imitating the revenue cycle). Loans, of all kinds to include (but not limited to) lines of credit, asset based lines and unsecured lines of credit have one common theme which in fact limits their ability to solve the question presented. Simply put, they all have limits. Loans of any nature are fixed in dollar availability, and once fully drawn upon, are no longer useful until some portion (or all) is paid back.

To further illustrate, imagine a medical practice has acquired a loan of $50,000. On the first of the month the business needed the full loan value for rent, insurance, payroll, phones, other utilities, and normal monthly expenses. A piece of diagnostic machinery breaks and repair is immediately needed. Payments from Medicare and other carriers are not due for a week. There is no more line available for use until part or all of the line has been returned to the lender. The obvious conclusion....loans will not work because they do not follow the revenue cycle.

The only financial tool that directly follows the revenue cycle is Medical Accounts Receivable (MAR) funding. Simply put, the provider delivers healthcare, and will get paid in no more than 48 hours. The key here is there is no limit or requirement for the first MAR funding to be paid back in order to draw down again, daily, weekly or in any time interval desired. The more receivables generated, the more financing is immediately available for the business...truly a revenue based financing facility.