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Up at Night What Keeps a CFO

Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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Page 1: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

Up at Night

What Keeps a CFO

Page 2: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 3: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 4: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 5: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 6: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

?

Page 7: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 8: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 9: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 10: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid
Page 11: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 12: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

States Wrestle with Budget Issues

The “Cost Shift” Continues

Page 13: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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

Page 14: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

Healthcare System

Universal Coverage

Health and Human Services

Page 15: Up at Night What Keeps a CFO. Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid

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