A new year means a fresh look at what’s working and what’s not – in all aspects of life. Here we are (finally) in 2021, and while the Covid-19 pandemic rages on, there are some bright spots to keep in mind. 140,000 New Yorkers have received the first Covid-19 vaccine dose to date and New York expects to receive another 259,000 doses this week. But while we are taking steps to protect the physical health of our frontline heroes, it doesn’t mean that the healthcare industry as a whole has good financial health – in fact, far from it. The American Hospital Association (AHA) estimates that from March to June, the pandemic cost hospitals around $202.6 billion. If you’ve been scratching your head trying to reimagine cost-savings measures, you’re not alone. For starters, you’ve probably re-examined supply chain operations and discussed opportunities to beef up your organization’s personal protective equipment (PPE) inventory for the coming months. But what emerging best practices can your team adopt to help achieve better working capital amidst this unpredictable environment?
Your healthcare system’s ability to pay off its obligations is a central measure of its financial health. Improve liquidity ratios by paying off liabilities, cutting back on costs, using long-term financing, and managing receivables and payables. There are many ways to approach liquidity, but for starters, we suggest that you examine areas your team can cut costs and consider your accounts payable. You can often negotiate longer payment terms with certain vendors – but if you never ask, you’ll never get the extension. Remember to frame your request in a way that makes the arrangement mutually beneficial. For example, more cash flexibility could be exchanged for several glowing referrals to industry connections. A hospital that can pay its expenses and pay down its debts through the profits it generates from its operations is one that is likely to succeed.
When it comes to cutting costs, always align professional fees with clinical demand. If you notice a particular service lacks a financially positive growth trajectory, it’s time to modify or eliminate it. You can also consider removing capital projects that are no longer feasible or lack full funding. On the flip side, prioritize high-demand clinical services you expect to grow, and explore partnerships to create regional solutions that share cost and risk. You can also perform rolling budget updates to consider the ongoing economic impact on payor mix and volume.
Embrace and expand telemedicine options. Despite the overwhelming challenges of the past year, Moody’s ranks U.S. for-profit hospitals as stable, with volumes expected to gradually recover from 2020 levels, while continued government aid and positive commercial and Medicare rate increases will drive growth. According to Moody’s latest report, technology and innovation will allow more procedures to be conducted outside of the hospital, and can also significantly help hospitals increase efficiency, improve patient outcomes, and save costs. By integrating long-term telehealth services, you will be saving money and expanding access to underserved communities, a true win-win.
There are four common balance sheet (statement of financial position) mistakes we’d like to help your organization avoid:
- Omitting transactions
- Recording transactions incorrectly
- Not classifying data correctly
- Forgetting to record inventory changes
The best way to avoid these errors is to check your balance sheet frequently (not just when you need to), and keep your financial documents organized. Compare the current reporting period with previous ones. Calculating financial ratios and trends can help you identify lurking financial pitfalls. Ask your team a few questions to gain a more transparent understanding of your financial makeup. Do you have more assets? Have you accrued more debt or invested in new equipment and facilities? Are your financial obligations (current liabilities) under control? Is the amount that payers owe you growing?
Without additional funding and significant transformation, the healthcare industry is likely to experience rapidly eroding liquidity in the coming months. On our road back to normal, organizations need to make drastic structural and operational changes. Now is the time to revisit cost-saving ideas your team may have previously considered but not set in motion. Acting now will improve short-term liquidity and pave the way for a more sustainable operation in the years to come.