Not-for-profit hospitals: Top-line revenue and liquidity are critical indicators

Moody's Investor Service in New York downgraded the not-for-profit hospital sector to negative from stable in November 2008--and nothing about either the current economic conditions or hospitals' prospects under health reform has inspired the rating service to change its mind, said Lisa Goldstein, senior vice president and healthcare team leader, speaking at last week's "2010 ANI: The Healthcare Finance Conference" in Las Vegas by the Healthcare Financial Management Association (HFMA).

"Hospitals still face a lot of challenges," she emphasized. Those challenges include "unprecedented" state and federal government deficits, the looming end of federal stimulus funds, and the fact that the tax-exempt status of not-for-profits is "in question" both nationally and on a local basis, said Goldstein. Hospitals also face "a lot of headwinds on the expense front," she said. Those include pension expense, bad-debt expense, interest costs and bank fees, and physician-related investments.

One significant challenge is the fact that "a bubble of bank letters of credit" will come due over the next two years, said Goldstein. "In 2011, $14 billion in bank letters of credit is expiring."

With the "long-hanging fruit" of cost cuts already taken, the industry should see "a continued widening of the gap between the high and low performers" because the next round of cuts will require process-level improvements, she said. "Everything will be under the microscope, including the revenue cycle."

Larger health systems could benefit from "management expertise and economies of scale," said Goldstein. However, "our focus is on top-line revenue going forward," she stressed. "If we see top-line revenue decline, that is an immediate red flag." In addition, Moody's now puts a high priority on monthly and annual liquidity vs. wealth. The question for hospitals is: "When they need it, can they get to it?" she said.

To learn more:
- visit the HFMA ANI webpage

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