Managing resources, setting goals are key to hospital financial health
To survive turbulent times, healthcare organizations must carefully manage their financial resources, says Ian Worden, executive vice president and chief operating officer of Indianapolis, Ind.-based St. Vincent Health.
Worden, speaking in June at the Healthcare Financial Management Association’s annual conference in Las Vegas, said healthcare institutions must look closely at days cash on hand and debt capacity when assessing resources.
A health system’s current and future resources “should include cash flow, earnings, donations, the use of debt and the ability to attract capital and spread risk,” he said.
During the past year, healthcare organizations have been plagued by the recession, financial market turmoil, increasing bad debt, a greater number of uninsured patients and state budget cuts that negatively impact Medicaid dollars.
According to the HFMA, 54 percent of providers reported negative total margins (operating and non-operating) in 2009 and 73 percent of providers reported a decline in days cash on hand, with 22 percent reporting a decline in excess of 20 percent. Approximately 43 percent of providers reported declines in net patient service revenue, with rural facilities reporting 60 percent declines.
According to Worden, St. Vincent’s operating margins peaked in 2006.
“We tend to manage healthcare in silos, (but) what we need is a continuum,” he said. “Managing across the continuum is going to be our job over the next few years.”
One of the strategies that St. Vincent Health used to try and stay afloat during the recession was to increase cash on hand.
Worden said it’s necessary to proactively address the major challenges with financial and operational strategies. He cited three phases to manage:
Develop a change management process.
Develop financial rational and goals.
Implement financial techniques.
Ultimately, healthcare financial leaders must make the case for financial health to the board, leadership, employees and their communities.
“You need to have your CEO on board when developing and implementing a change in management processes,” said Worden. ”(Executives) are going to have to help with the changes in management, and we aren’t good at the human side of things, we’re good at the financials.”
Hospital and health system CFOs need to keep a close eye on their institutional investment portfolios, Worden said, noting that investments are a critical component to managing an organization’s financial health, although they’re often overlooked.
Worden said organizations should set financial targets across multiple years that are based on an integrated strategic operating financial plan (ISOFP), including a technology refresh and facilities plan. A minimum operating margin should also be designated.
“Unfortunately, your fixed costs will probably be one of your biggest problems,” he said.
