Time for Sound Fiscal Strategy
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This article appears in the April 2013 issue of HealthLeaders magazine.
Editor's note: This piece is adapted from Philip Betbeze's February 15 online column, "Revenue Can't Fix Bad Metrics, Only Strategy Can. " To read his weekly Leadership Corner columns, visit www.healthleadersmedia.com/Leadership.
In the business of healthcare, it's hard to escape the reality of reduced profitability as far as the eye can see. That dour outlook is being reflected in the bonds of nonprofit healthcare organizations. If you owe money to an individual or institution, they like to keep a close eye on the general health of the business, in addition to the individual market in which you operate.
And based on their calculations, all is not well.
A February 12 report from Moody's Investors Service revealed that 2012 was a record year in terms of the amount of hospital and health system debt downgraded. At $20 billion of nonprofit healthcare debt downgraded, 2012 represents the highest amount of downgraded debt since Moody's started tracking the metric in 1995, and is more than double the amount of upgraded debt (which is reflected in improving business trends). Granted, "since 1995" is not a long history. Also, the report is loaded with caveats. Three large systems accounted for more than half the downgraded debt, so the record amount of downgraded debt is, by itself, not necessarily a harbinger of hard times.
Indeed, many hospitals and health systems that saw upgrades on their debt were able to realize a stronger financial position through expense management strategies and balance sheet improvement, showing that those strategies may still have some room to run.
Yet Moody's expects an increase in downgrades in 2013. Clearly, this trend is not your friend.
It's difficult to make correlations between individual systems and the macro environment. Your hospital or health system may be doing well. You know all the stuff going on at your organizations better than analysts at Moody's do, after all, and if you're comfortable, maybe this news is concerning to a degree, but it's not going to change your long-term strategy.
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