Analysis by Kaufman Hall advises hospital and health system leaders on responding to present and future economic pressures.
The federal government and its current budget construct are the biggest challenges to healthcare organizations' financial sustainability, according to Kaufman Hall.
Eric Jordahl, the managing director of the financial and performance consulting company, offered his insight on how hospitals and health systems must adapt to the government dictating the financial environment as the leading payer.
Though an agreement to suspend the $31.4 trillion debt ceiling until January 2025 was reached earlier this month, the federal budget construct is unsustainable in the long term and Congress' eventual attempts to restructure spending will impact healthcare organizations, Jordahl writes.
The analysis highlights that the Congressional Budget Office (CBO) earlier estimated federal spending to reach $9.8 trillion (25% of forecasted GDP) by 2033 and debt held by the public to exceed $45 billion (118% of forecasted GDP) over the same period. CBO's estimates indicate that the 2023 debt ceiling agreement should generate around $1.3 trillion in savings over a decade, which Jordahl states isn't consequential due to expected expenditures.
"All this confirms that the greatest threat to healthcare's financial and credit foundation remains the federal government's role as lead payer," Jordahl writes. "Other important pressure points include state fiscal health and the specter of recession (which may work differently if continued hiring translates into a 'full-employment recession'). But the big resource engine is the federal government, and its current budget construct isn't sustainable."
Jordahl mentions that Congress can attempt one or a combination of: restructuring programs to reduce cost, raise taxes, or tolerate escalating debt. Regardless, " any solution is likely to mean constrained resources for healthcare."
To prepare, hospitals and health systems should improve cash flow to improve both internal capital and the ability to access external capital, Jordahl advises.
Focusing only on improving operational performance won't be enough—organizations should also aim to manage their balance sheet.
As hospitals and health systems continue to combat challenges stemming from the COVID-19 pandemic, they also need to plan for the realities of the federal budget, an issue that "is likely to define healthcare’s experience for the foreseeable future."
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
Kaufman Hall managing director Eric Jordahl advises healthcare organizations to be ready for Congress' eventual attempts to restructure spending.
Hospitals and health systems should look to improve cash flow and balance focusing on improving operational performance with managing their balance sheet.