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.