Forget Reform, Stay Focused on the Short-Term

This news was eclipsed in the headlines last week by healthcare reform legislation introduced in the House and Senate. However, as hospitals struggle to reduce costs and increase their liquidity, pressure from rating agencies is more likely to affect the bottom line in the near term than a reform package from Washington, which may take several years to be rolled out.

In Moody's April 2009 Not-For-Profit Healthcare Rating Roadmap report, analysts said they expected "all rated hospitals to report weaker financial performance in 2009," due to higher unemployment and restricted access to capital among other issues. The report's authors issued 14 red flags that could trigger a rating review, including decline in total operating revenue, a 30% decline in operating cash flow, and an unexpected increase in debt. One analyst I spoke to recently said Moody's is doing an enhanced analysis of liquidity of nonprofit hospitals and peeling back the layers to understand what is cash vs. what is liquidity.

So, it seems that while Washington threatens to overhaul the entire healthcare system by October, healthcare leaders know that one of the most important activities they can do today is find ways to trim excess fat, and build cash reserves to brace for both the near and long-term financial hits.