Most Nonprofit Hospitals and Health Systems Had “Strong” Days of Cash on Hand in 2022, Though About One-in-10 Were “Vulnerable” | KFF (2024)
Most nonprofit hospitals and hospital systems had enough cash on hand in 2022 to cover operating expenses for an extended period of time, though about one-in-10 had relatively low levels to cover their expenses, which potentially could leave them vulnerable in a financial crisis, a new KFF analysis finds.
The analysis comes as the hospital industry pushes for increases in Medicare and Medicaid reimbursem*nt levels and Congress considers legislation that would reduce hospital revenues, such as through site-neutral payment reform. It looks at “days cash on hand” at 274 nonprofit hospitals and health systems rated by S&P Global, which are estimated to collectively account for more than half of all nonprofit hospitals and about two thirds of nonprofit beds. The measure is one of several that S&P Global uses to assess hospitals’ financial health and determine their credit rating. Those with more days of cash on hand are better able to weather financial challenges, such as low operating margins.
Nearly three-quarters (73%) of nonprofit hospitals and health systems analyzed had at least “strong” levels of cash on hand based on the S&P’s standard definitions – enough to cover at least 150 days of expenses for health systems or 160 days of expenses for stand-alone hospitals.
An additional one-in-six (18%) had “adequate” levels of cash on hand – enough to cover 100-150 days for hospital systems or 110-160 days for stand-alone hospitals.
About one-in-10 (9%) analyzed hospitals and health systems had fewer days of available cash on hand, which the ratings agency considers “vulnerable” or “highly vulnerable.”
The total share of non-profit hospitals and health systems with “vulnerable” or “highly vulnerable” levels of days cash on hand may be larger, since the as the S&P data analyzed underrepresents groups that are more likely to face financial challenges, such as small and rural hospitals.
Across all analyzed hospitals and hospital systems, the average levels of days cash on hand stood at 218 days in 2022, similar to the levels in 2019 but down from a recent peak during the early years of the COVID-19 pandemic.
A non-profit hospital is a hospital that does not make profits for owners of the hospital from the funds collected for patient services. The owners of non-profit hospitals are often a charitable organization or non-profit corporations. Fees for service above the cost of service are reinvested in the hospital.
https://en.wikipedia.org › wiki › Non-profit_hospital
and health systems had 'strong' cash reserves in 2022, KFF finds. An analysis of cash on hand suggests that, despite declining operating margins, some nonprofit health systems had enough of a financial cushion to weather tough operating conditions in 2022.
Adequate: 110-160 days for standalone hospitals; 100-150 days for systems. Vulnerable: 80-110 days for standalone hospitals; 70-100 days for systems. Highly vulnerable: <80 days for standalone hospitals; <70 days for systems.
If a private business doesn't have to pay taxes, its expenses will be lower. Additionally, because nonprofit hospitals are defined as charitable institutions, they can benefit from tax-free contributions from donors and tax-free bonds for capital projects, things that for-profit hospitals cannot take advantage of.
Expenses are projected to increase throughout 2022, leading to an increase of nearly $135 billion over 2021 levels. Labor expenses are projected to rise $86 billion in 2022, while non-labor expenses are projected to increase by $49 billion.
The objective of cash management is not only to ensure healthcare providers have sufficient funds to improve resources, pay staff and suppliers, and remain competitive within the industry, but also to ensure that the collection and disbursem*nt of payments for services and purchased goods happens efficiently.
For a well-run business, you would want a minimum of 30 days cash on hand, but 90 days would be preferable to ensure you have time to deal with unexpected changes in circ*mstances.
Risk assessment: A higher DCOH ratio signifies lower risk since the company has more cash available to meet its immediate obligations, thereby immediate avoiding cash flow issues.
Although the median operating margin ended 2023 at 2.3%, the Kaufman Hall analysts say it is a tenuous advantage. "Too many hospitals are still losing money," they note, pointing to the 40% of U.S. hospitals that continue to lose money from operations into 2024.
Total net income declined sharply in 2022 to $910 million as many hospitals experienced increases in operating expenses and significant reductions in nonoperating revenue. Data for 2023 show a positive margin on operations across the sector, with total net operating income of approximately $1.6 billion.
The new CMS data show that nearly half of the 4,644 Medicare-enrolled hospitals are non-profit (49.2 percent), 36.1 percent are for-profit, and 14.7 percent are government-owned.
These cash reserves are called “days cash on hand” and represent the amount of money it takes to pay all of the hospital's expenses for that number of days.
At a high level, financial management in healthcare is focused on the “4 C's”: costs, cash, capital and control. Typical elements include financial evaluation and planning, budgeting and forecasting, generating revenue, mitigating risk, detecting fraud, and complying with regulations.
The California Health Facilities Financing Authority (CHFFA) was established in 1979 for the purpose of providing financial assistance to public and private, non-profit health care providers in California through loans funded by the issuance of tax-exempt bonds.
Nearly three-quarters (73%) of nonprofit hospitals and health systems analyzed had at least “strong” levels of cash on hand based on the S&P's standard definitions – enough to cover at least 150 days of expenses for health systems or 160 days of expenses for stand-alone hospitals.
While you're working, we recommend you set aside at least $1,000 for emergencies to start and then build up to an amount that can cover three to six months of expenses. When you've retired, consider a cash reserve that might help cover one to two years of spending needs.
How much do you need? Everybody has a different opinion. Most financial experts suggest you need a cash stash equal to six months of expenses: If you need $5,000 to survive every month, save $30,000.
It refers to both patient payments and insurance payments and is generally calculated for periods of 3 months, 6 months, and 9 months. The average range for AR days is 30 days to 70 days, although anything over 50 days could be indicative of financial trouble for your practice.
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