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Cash shortages plague hospitals but there are signs of improvement ahead

Revenue is not keeping up with inflation, but the trend is heading from hospitals losing money to making money.

Susan Morse, Executive Editor

Photo: Morsal Images/Getty Images

Many hospitals are facing a cash shortage brought on by labor costs, inflation and the continued struggle to recover financially from the pandemic.

Literally three times a day, Plante Moran's Duane Fitch said, he hears from healthcare systems that are on the verge of violating their financial covenants with lenders. Fitch is a national healthcare consulting practice leader who works with hospitals to optimize financial and strategic performance. 

"Revenue is not keeping up with inflation and is putting tremendous pressure on the bottom line," Fitch said. "We advise them to make sure they collect all of the revenue. Revenue cycle leakage is a big issue."

Plante Moran works with hospitals on creating Centers of Excellence in one or two service lines and making sure they are optimizing performance in those lines. 

"When you see a lot of these healthcare providers reporting billion dollar losses last year, a lot of that was in the investment portfolio," Fitch said. "Operating losses were still substantial. This year I think we're starting to see some improvement."

Truist healthcare industry consultants Henry Grady and Greg Oliver also said last year was an inflection point, when hospitals were finally able to pass on higher costs.

This year hospitals are not out of the woods, but the trend is heading from clients losing money to making money, Oliver said.

Truist Bank's geographic footprint stretches from Pennsylvania to New Jersey and has a growing presence in Texas. Oliver, Grady and their team work with about 130 different hospitals on investments and portfolio allocation. Truist provides short-term interim financing that allows hospitals to keep a project going until there are better conditions for long-term debt, they said.

Capital projects are more expensive to fund due to higher interest rates. Gone is the low-interest environment of a year ago.

A recent study from Deloitte indicates a growing need for capital in the healthcare industry. Seventy-six percent of respondents said that inflation and affordability would have a significant impact on their 2023 strategy. 

"In this environment, not a great time to borrow money," Oliver said.

Post-COVID-19, hospital committees and boards have dusted off strategic plans, Grady said. 

Some hospitals are looking to partner on a financing component. This includes real estate. Instead of lending the money, Truist has been partnering with health systems on options to lease or buy.

"We will build it, and own it, and lease it back to them," Oliver said.

Using someone else's money frees up the liquidity drain. 

"There's a way to do that with other people's money," Grady said. "We have a platform within the bank, a real estate platform."

Hospital executives can't just sit on the sidelines waiting to do other capital projects.

Hospitals are expensive to operate. There's needed equipment, an aging infrastructure and growth in neighborhoods all spurring a consistent need for capital to keep them current, and to keep them growing, Grady said.

Hospitals are carving out $5-$10 million in a particular software, or AI, or a home health platform, he said. Executives are looking at becoming more efficient through technology whether it be AI, remote monitoring or wearable devices.

"I'm seeing more dollars invested into certain new technology," Grady said. 

Twitter: @SusanJMorse
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