Managing Financial Stress and Risk Amid Economic Uncertainty

Healthcare organizations are being battered by strong macroeconomic headwinds. In these conditions, optimizing their capital and cash positions is emerging as a top priority.

During Becker's 10^th Annual CEO + CFO Roundtable, in a session sponsored by Huron, two of the firm's managing directors — Todd Patnode and Philip Kaplan — led a discussion about what providers can do to make the most of available resources to not only weather today's current storm, but remain competitive in the long term.

Three key insights were:

1. Faced with economic headwinds, healthcare providers must make critical strategic choices. Multiple macroeconomic factors — including rising labor costs, elevated inflation, declines in investment markets and high interest rates — are negatively impacting organizations' operating margins, profitability and access to capital. As a result, many are challenged to maintain profitability and ensure long-term independence.
   

   To tackle this problem, providers must look beyond opportunities for margin improvement cost reduction, and revenue cycle enhancement. Instead, leading healthcare organizations should focus on optimizing their working capital to ensure long-term financial stability. Capital optimization includes changing the ways they deliver care. "It's really important to have an honest assessment of where on the financial stress continuum you are and [be prepared to] challenge the status quo, because that's probably how you're going to have to sustain financial viability," Mr. Patnode said.

2. To strengthen their capital position, health systems need a comprehensive but nuanced strategy. As organizations consider optimizing their sources and uses of capital, they can avail themselves of several key levers to address capital shortfalls. These levers include operating and non-operating performance improvements, debt restructuring/taking on additional debt, capital management, asset monetization, real estate capital, strategic partnerships and working capital optimization.
   
   "What gets noticed by the board is bringing together a strategy for optimizing your capital where you're thinking not just about the margin, but also about strengthening the balance sheet . . . and ensuring that [your organization is] focused on approving the highest-ROI projects," Mr. Kaplan said.
   
   

3. Provider organizations are adapting to creatively manage their working capital and liquidity. Few organization have had a chance to wholly redesign and optimize their post-pandemic capital and days-cash-on-hand strategies; however, most are doing the best they can. Participants shared some of the approaches they are taking:
   
   

• • Focusing more than ever on expense management and making sure that whatever limited capital they are spending is directed at strategic services.
    
    

• • Getting more rigorous about denials management to maximize cash flow.
    
    

• • Reevaluating projects and adjusting spending accordingly instead of cutting capital investments across the board.
    
    

• • Propagating a culture of efficiency across the organization (e.g., by reducing the number of vendor partners, cutting waste, incentivizing staff by sharing efficiency savings).
    
    

• • Developing a five- to seven-year capital plan "based on what we think we have to invest in to be competitively where we want to be."