Healthcare Suffers, Too

"We're making decisions about major capital investments while debt financing is increasingly difficult because of credit tightening," he says. "And the range of financial products available to hospitals has narrowed based on auction rate securities not being viable and banks tightening liquidity facilities that support variable-rate debt."

No dollar too small
"As little as 10 years ago, a lot of health systems didn't even bother going after some small-dollar balances," says Russ Rudish, vice chairman and national industry leader of Deloitte & Touche LLP's healthcare provider practice. "They would just write it off because the cost of going after the money was higher than the amount they would anticipate receiving. But it's almost impossible to forgo that these days."

That's because there are simply so many of those accounts. So many that as much as one-tenth to one-eighth of a hospital's total commercial revenue might depend on revenue it has to collect, according to an informal survey of a group of hospital CFOs.

"It costs a lot of money to go after these balances," says Morris. "We're making adjustments in policy and practice to get as much money up front as possible. But it's problematic as bills escalate for more sophisticated services."

Add to that the cost of raw materials hospitals need for items as wide-ranging as concrete and steel for construction and coal for power plants, and you have a pretty sizable headwind, both CFOs agree. Morris says Duke has contracts for coal to power the campus's electric generators, "and we are experiencing difficulties with prices even where contracts exist."

"All my suppliers are pushing for more on transportation costs," says DCH Health System's Winfrey, speaking generally of medical supplies. "We're just in a continuous duel with our suppliers."

New strategies
Problems hospitals are having in collecting money they're owed are due in part to the rapid transformation of payment sources. Winfrey at DCH is working on length-of-stay and case management to help get patients out of the hospital sooner. The system has had a revenue cycle and coding and documentation improvement process in place for at least three years. Further, Winfrey is planning to use more physician advisers, "even though it costs money," to work with the medical staff to improve documentation. And finally, the system is working to transform its emergency department, where much of its bad debt originates.

"We probably will move physicians out to the triage area in the ER because the patient has to be seen first before you mention finances," he says. "That way, the physician can determine whether they're a true emergency patient."

Once that determination is made, DCH physicians might refer the nonemergency uninsured to a clinic that's attached to the ED, where the patient will receive care and financial counseling. "If they don't have the ability to pay we're going to give them the location of indigent care clinics in town that they can possibly go to," he says. "We just can't do everything for everybody anymore."

Rudish says most "name brand" hospitals like Duke have done creative and smart things in collecting—and to be sure, their credit ratings reflect their financial strength. But the vast majority of hospitals have not effectively addressed the front end of their revenue cycle, he says. Issues like determining which department (finance or operations) should be responsible for obtaining a patient's demographic information or securing methods of payment stand as impediments to a hospital's financial health.

For his part, Duke's Morris is counting on such strategies to carry the system through tough economic times.

"Bottom line, it's still a challenging business, and I'm hopeful that a strong balance sheet will allow our organization to weather these difficulties while the extent of the tough times plays out over the next three years."