One part bull market, two parts bulldog tenacity.
That's the secret behind the healthcare industry's fiscal health.
Thanks to vigorous cost control, hospitals and healthcare systems, by and large, are sitting pretty. In 1996 total margins reached a five-year high of 5%, according to the Center for Healthcare Industry Performance Studies in Columbus, Ohio. And although numbers for 1997 aren't in yet, signs point to continued stability. Rating agencies' upgrades of healthcare bonds, for example, continue to outpace downgrades of industry debt.
Meanwhile, Wall Street is rewarding even novice stockpickers and money managers. Just look at the healthcare industry's balance sheet. Hospitals and single-state health systems, for instance, had more than $37 million in unrestricted cash and investments to play with in 1996-doubling 1992's reserves, according to median figures published by Moody's Investors Service. Multistate systems were sitting on a whopping $444 million-plus-also twice the 1992 median.
Smart providers will continue focusing on boosting returns from investment income and managing available cash.
Private investors have made a bundle on Wall Street, too. And now they're looking to spend some of it in healthcare, with the hope of big returns. Venture capitalists poured more than $1.8 billion into healthcare-related investments in the first nine months of 1997. Meanwhile, large leveraged buyout firms have begun staking out investment opportunities in areas such as long-term care and assisted living.
Economists generally predict a steady interest-rate environment and low inflation for 1998. If the economy continues humming along, hospitals will see their cash stashes pile higher, and that will help capitalize future growth and integration and provide a cushion against slumping reimbursements.
All this doesn't mean it's time for healthcare providers to sit on their haunches. Now that the easy pickings of cost containment are done, they will have to look elsewhere for savings to offset Medicare reductions and contractual allowances. One way they will do that is by implementing more aggressive receivables collection procedures and self-pay billing policies.
Weaker credits, particularly small urban hospitals, continue to struggle. And if you read between the lines, you will see signs of instability:
Moody's notes that a number of lower-rated hospitals are pulling out of the ratings pool and getting bond insurance rather than going to the capital markets on their own credit strength.
Richard Clarke, president and chief executive officer of the Healthcare Financial Management Association, predicts an uptick in healthcare provider organizations' cost of capital, hurting hospital profitability.
Meanwhile, the federal government's zealous campaign against fraud looms as a big financial unknown for many hospitals.
The best chief financial officers can hope to do is remain committed to building patient-friendly healthcare systems. Ultimately, that's what it's all about. And that's no bull.