Current Economy's Trickle Down Effect On Hospitals' Finances

Rising health insurance deductibles, soaring drug co-payments and explosive gas prices are all having a trickle-down effect on hospitals' financial positions across the U.S.

The trend has meant more patients delaying procedures and preventive care, more uninsured patients, and less reliable payment methods - all of which can put a squeeze on hospital finances.

The current trends may represent a fundamental shift in health care and hospitals will have to come up with ways to plug revenue drains and generate more income.

Medical Accounts Receivable (MAR) Funding can be utilized by hospitals and healthcare providers as a way to increase revenue and reduce costs. It can be used to accelerate cash flow by turning a non-performing asset, accounts receivable, into working capital. MAR Funding also allows healthcare providers/suppliers to take advantage of cash discounts and/or quantity discounts as well as other cost savings from vendors. It is often used to fund various management tools which can reduce overall costs of operations.

"This Is Gonna Cost You"

A timely title in the March 3 issue of the HealthLeaders Financial E-newsletter. Everywhere you read about the business of healthcare, the lament is the same. The liquidity crunch hitting the financial markets is driving up interest costs on debt for hospitals across the country. especially those using auction-rate debt. Furthermore, as one CFO is quoted in the article, "...it is taking over all the time of the accountants, investment bankers and CFO's."

Perhaps moreso now than at any other time previously, today's healthcare financial executives need to find additional resources to meet their financial needs - without going into more debt. A solution: accelerate your cash flow and generate more working capital from your operations. However, reimbursement delays compound the problem so that your cash flow is often an obstacle to profitability rather than a source of working capital.

There is a funding tool that does provide a cash flow solution to your working capital needs. Add Sun Capital HealthCare Inc.'s Medical Accounts Receivable [MAR]Funding program to your fiscal strategies and your cash flow becomes a solution rather than a problem. By selling your receivables, you can have cash within 24-48 hours of submission. Instead of sitting on your balance sheet and not yielding any return, Sun Capital's MAR funding program, specifically designed for and exclusively offered to healthcare executives, can help overcome both the liquidity crunch and the reimbursement delays.

Moving from crisis management to strategic planning

A special commission in New Jersey has issued a report dealing discussing financially ailing hospitals in the state. Five have filed for bankruptcy since July 2006 and 16 acute care hospitals have closed in the last decade. N.J. is one of two states that require hospitals to provide Charity Care through which hospitals are reimbursed from public insurance funds for costs associated with the poor. While reimbursement rates are part of the problem, Heather Howard, the New Jersey health commissioner, said officals are working on a early warning system for rescuing financially troubled hospitals. "Unfortunately, a hospital will sometimes come in on Friday and say, 'We can't meet payroll; can you help us out.' "Ms. Howard said, "I want to move from a culture of crisis management to one of strategic planning."

New Jersey's experience has relevance for the healthcare industry, especially in the current liquidity crunch. Effective financial planning using all the financial tools available to the healthcare industry is even more important today. An underutilized financial tool is medical accounts receivable [MAR] funding. More and more providers are adding MAR funding to their financial portfolio because it is debt-free and provides a predictable cash flow to their finances. It transforms your accounts receivable into a cash flow solution for generating working capital rather than an obstacle to growth and profitability.

Financial Challenges in Future for Hospital Industry

Despite the challenges they face, U.S. hospitals have actually improved their financial status in recent years -- but that may be about to change, according to a new report. Moody's Investors Service, which rates not-for-profit hospital debt, has issued a warning that while hospitals appear to be financially stable in 2008, it's not clear what will happen in 2009 and 2010 if the economy takes a plunge.

The Moody report states that in years to come there will be rising numbers of uninsured and underinsured patients. Changes generated by the upcoming presidential election could also present financial dilemmas for the hospital industry. To weather the storm, hospitals are looking at mergers as well as other strategic funding solutions such as Medical Accounts Receivable (MAR) Funding as a way to increase cash flow to expand and/or upgrade facilities.