Hospitals using investment cash flow for capital needs

Wow, this doesn't sound like a good sign. According to a new study from A.M. Best, cash-strapped hospitals have begun to turn to their investment cash flow as a means of generating necessary capital. They're doing so to keep up with on-going needs for health IT investments, facilities upgrades and maintenance and charity care, which are difficult or impossible to meet through conventional means given their falling revenues.

Usually, hospitals see investment income as an extra source of funding for capital budget items, but these days, it's becoming more of a staple, A.M. Best researchers said. Between 2004 and 2007, the 170 hospitals studied by Best allocated a steadily greater portion of their invested assets to cash and short-term investments, climbing from 27 percent in 2005 to 31.1 percent in 2007.

Meanwhile, fixed income investments by hospitals dropped to 24.9 percent in 2007, falling from 32.7 percent in 2004. (Given how badly T-bonds and other fixed-income vehicles have been doing, maybe that's not such a bad idea.)

All that said, it's worth noting that despite moving all of this money over, the median current ratio for these hospitals only increased by 10 basis points from 2005 to 2006, and stayed flat from 2006 to 2007. This doesn't sound like a sustainable process over the long term. (What do you think? Write to us and share your thoughts.)

To learn more about the study:
- read this Healthcare Finance News piece