Nonprofit health systems face lower cash reserves


Cash days in nonprofit hospital systems are trending lower as the sector recalibrates after last year’s above-normal balances.

For some, this requires making difficult choices.

Trinity Health is looking for ways to stabilize its portfolio, while deferring capital spending, even as demand increases for improved equipment and facilities, CEO Michael Slubowski said. The Livonia, Mich.-based health system had 237 days of cash as of March 31, up from 261 days at this time in 2021, according to the most recent data available.

“The main primary directive on this is to try to reduce our operating expenses and find all possible sources of revenue to try to get back to a solid financial footing,” Slubowski said.

Last year, hospital coffers were bolstered by federal COVID-19 relief funds, including benefits from payroll tax deferrals and the Accelerated and Advance Payments Program implemented in early 2020 by the Centers for Medicare & Medicaid Services.

“This has led to a ballooning balance sheet(s) that is now coming down from the peak you had at the end of 2021, but even (with) this balance sheet cycle receding… on average, nonprofits will always hold plenty of cash,” said Daniel Steinart, senior credit manager at ratings firm Moody’s.

Not-for-profit systems typically hold more cash than for-profit organizations because there are no shareholders vying for releases of excess capital and the entities enjoy tax-exempt status.

According to an analysis of about 700 nonprofit hospitals from consulting firm Kaufman Hall, the median number of cash days fell 18% from June 2021 to July this year.

One of the main causes of the recession is the mandatory repayment of the Medicare loan program. Providers must repay the amount in 29 months, a period that ended this summer for those who received the installments in early 2020. The repayment period is expected to end for providers by the end of the year . By May, about 75% of the outstanding amount had already been repaid, said Erik Swanson, senior vice president of data and analytics at Kaufman Hall.

Higher expenses, primarily due to increased labor costs, and the resulting squeeze in operating margins are other factors that are straining available cash.

“It’s going to be a very difficult year. We haven’t seen any extremely bright spots of high expense load reduction, huge inflows or rushes in returning volumes,” Swanson said. “If you entered the pandemic and found yourself in this situation with a relatively fragile balance sheet, you would probably be very worried by now.”

He estimated that more than half of hospitals were dipping into their cash reserves to cover day-to-day operating expenses.

Small healthcare organizations are more prone to cash flow issues.

Peggy Abbott, CEO of Ouachita County Medical Center in Camden, Arkansas, said available cash was the lowest she had seen in her 35-year career in healthcare — the days of cash on hand are at a “critical level” at the medical center. She did not provide additional details.

“Survivability is really a question at this point,” Abbott said. “We never had a big margin anyway, but we…have a non-existent margin, it seems to me, today. … We really operate on a weekly cash basis at the Ouachita County Medical Center, and I think many individual rural hospitals are in the same space.

To stay afloat, the hospital has reduced work days in non-clinical areas and shortened shifts by two to four hours. Abbott, along with other executives, voluntarily cut their salaries. She reached out to government officials and lawmakers for help. A local bank is willing to provide short-term loans to the hospital.

Turning to lines of credit is a temporary fix, Swanson said. And analysts are monitoring whether hospitals fail to meet their debt agreements, which could negatively affect credit ratings and limit future options for issuing more debt.

Main Line Health has seen a 100-day erosion in days of cash in the past year, CEO Jack Lynch said.

A few capital projects are siphoning off funds from Philadelphia-based Main Line, including a $327 million upgrade to the Riddle Hospital campus. There was also a $35 million expansion doubling Bryn Mawr Hospital’s inpatient psychiatric unit, as well as a $45 million investment in neuro-interventional programs.

“Our board has dramatically reduced our capital investments, reducing strategic investments and only really investing in capital equipment that will affect safety, quality and fairness,” Lynch said.

Main Line engaged a consulting firm to assess its cost structure, including ways to eliminate excess costs and standardize its care processes and providers. For example, the organization is working to reduce costs by avoiding unnecessary hospitalizations, especially as length of stays increase in the industry.

Joseph Malas, chief financial officer of Genesis Health System, based in Davenport, Iowa, said recent investment losses have had a negative impact on the system’s cash balances, with fears of recession driving a volatile market. For example, all the gains posted in 2021 on the S&P 500 had been erased from this month of June. Several health systems cited investment losses as a key reason for the poor second quarter performance.

Genesis Health had 220 days of cash in August, up from 311 days a year earlier.


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