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Up at Night
What Keeps a CFO
Recession Impact on Operations Cash and Investments Capital Access Competitor and Market
Responses State Budgets and Medicaid CMS and the Feds
Issues of the Day
Volumes down 5% to 10% or more Charity and bad debt increasing as a % of gross
patient revenue Operating margin taking an immediate negative
turn Heightened efforts to flex staff and reduce expenses
– no margin for error Layoffs likely, contingency plans ready Impact on ability to raise funds through
philanthropy
Recession Impact on Operations
Then we show the board this -Best M edical Center
Operating Margin
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2004 2005 2006 2007 2008
Fiscal Year
Per
cent S&P A+ Median
Actual
Investments lose 25%+ of their value Cash calls on fixed payer and basis swaps Revenue cycle impacted by growth in
uninsured and under-insured patients Days cash on hand drop proportionately Investment earnings – what to project for
the future? Capital spending must be reevaluated Major project timing significantly impacted
Cash and Investments
Then we show the board this -
Best M edical Center
Excess Margin
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2004 2005 2006 2007 2008
Fiscal Year
Per
cent
Actual
S&P A+ Median
?
Auction rate securities failed Insurance and bank support for bonds difficult to get Variable rate markets are positive, but risky Fixed rate debt very expensive, requires strong credit
rating Alternative means looking more attractive (e.g.,
monitizing MOB’s) Bond ratings a concern with weakened financial
performance, balance sheet changes, debt covenant requirements, and downgrade in outlook for the healthcare industry
Capital Access
And we show the board this -
Best Medical Center
Days Cash on Hand
100
120
140
160
180
200
220
2004 2005 2006 2007 2008
Fiscal Year
Day
s C
ash
S&P A+ Median
Actual
Providers who issued debt for major projects just prior to market failures have strategic advantage over those pending major projects
Some providers stop providing services with low margins, increasing those volumes in other hospitals
Local non-profit support agencies (e.g., homeless, mental health) lose government funding, complicating discharges and increasing volumes of under-insured patients which negatively impacts payer mix
Competitor and Market Responses
State budgets are cut due to economy; Medicaid funding reduced substantially
State proposes increased provider tax that may not be covered by increased reimbursement; concern over use of funds by the state
State implements managed care solution to lower its costs for the Medicaid population; providers at risk for denials and payment delays
State needs in non-healthcare areas competing with healthcare for federal stimulus funds
State healthcare reform proposes increased scrutiny of healthcare expenditures, regulation of price increases for providers and insurers which impact hospital reimbursement, increased price transparency
State Budgets and Medicaid
States Wrestle with Budget Issues
The “Cost Shift” Continues
President proposes to cut Medicare Advantage rates to Medicare equivalents
10%+ potential reduction on half the hospital’s Medicare volume
RAC audits roll out to additional regions Healthcare Reform on the horizon with Obama
Administration and appointment of Daschle to lead Health and Human Services
CMS and the Feds
Healthcare System
Universal Coverage
Health and Human Services
Financial position and margins are challenged like never before
Unusual events are the norm (recession, financial markets, etc.)
Scrutiny by government and consumers is at an all-time high
With so much uncertainty beyond the control of the healthcare provider, focus on what you can control (i.e. changes to debt structure, capital expenditure plans, operating budgets, revenue cycle performance, etc.)
All the while, improving quality, service excellence and access to care
In Closing