Up at Night

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Up at Night
What Keeps a CFO
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Issues of the Day

• Recession Impact on Operations
• Cash and Investments
• Capital Access
• Competitor and Market Responses
• State Budgets and Medicaid
• CMS and the Feds

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Recession Impact on Operations

• Volumes down 5 to 10 or more
• Charity and bad debt increasing as a of gross
  patient revenue
• Operating margin taking an immediate negative
  turn
• Heightened efforts to flex staff and reduce
  expenses no margin for error
• Layoffs likely, contingency plans ready
• Impact on ability to raise funds through
  philanthropy

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Then we show the board this -
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Cash and Investments

• Investments lose 25 of their value
• Cash calls on fixed payer and basis swaps
• Revenue cycle impacted by growth in uninsured and
  under-insured patients
• Days cash on hand drop proportionately
• Investment earnings what to project for the
  future?
• Capital spending must be reevaluated
• Major project timing significantly impacted

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Then we show the board this -
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Capital Access

• Auction rate securities failed
• Insurance and bank support for bonds difficult to
  get
• Variable rate markets are positive, but risky
• Fixed rate debt very expensive, requires strong
  credit rating
• Alternative means looking more attractive (e.g.,
  monitizing MOBs)
• Bond ratings a concern with weakened financial
  performance, balance sheet changes, debt covenant
  requirements, and downgrade in outlook for the
  healthcare industry

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And we show the board this -
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Competitor and Market Responses

• Providers who issued debt for major projects just
  prior to market failures have strategic advantage
  over those pending major projects
• Some providers stop providing services with low
  margins, increasing those volumes in other
  hospitals
• Local non-profit support agencies (e.g.,
  homeless, mental health) lose government funding,
  complicating discharges and increasing volumes of
  under-insured patients which negatively impacts
  payer mix

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State Budgets and Medicaid

• State budgets are cut due to economy Medicaid
  funding reduced substantially
• State proposes increased provider tax that may
  not be covered by increased reimbursement
  concern over use of funds by the state
• State implements managed care solution to lower
  its costs for the Medicaid population providers
  at risk for denials and payment delays
• State needs in non-healthcare areas competing
  with healthcare for federal stimulus funds
• State healthcare reform proposes increased
  scrutiny of healthcare expenditures, regulation
  of price increases for providers and insurers
  which impact hospital reimbursement, increased
  price transparency

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States Wrestle with Budget Issues The Cost
Shift Continues
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CMS and the Feds

• President proposes to cut Medicare Advantage
  rates to Medicare equivalents
• 10 potential reduction on half the hospitals
  Medicare volume
• RAC audits roll out to additional regions
• Healthcare Reform on the horizon with Obama
  Administration and appointment of Daschle to lead
  Health and Human Services

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Health and Human Services
Healthcare System
Universal Coverage
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In Closing

• Financial position and margins are challenged
  like never before
• Unusual events are the norm (recession, financial
  markets, etc.)
• Scrutiny by government and consumers is at an
  all-time high
• With so much uncertainty beyond the control of
  the healthcare provider, focus on what you can
  control (i.e. changes to debt structure, capital
  expenditure plans, operating budgets, revenue
  cycle performance, etc.)
• All the while, improving quality, service
  excellence and access to care