While profits increased for most providers last year, many health system, physician group, post-acute and outpatient operators are cash-strapped, according to a new report.
Nearly 80% of chief financial officers surveyed in October 2023 said their profitability improved last year as labor and supply cost growth slowed, according to accounting firm BDO, which polled 100 hospital, health system, physician group, post-acute and outpatient executives. Still, only about a third of organizations had more than 60 days cash on hand, which measures how long a company can cover expenses with available cash.
Related: Health systems looking to replenish cash reserves
“The healthcare industry is still in recovery mode in many ways,” Brad Boyd, national co-leader of the BDO Center for Healthcare Excellence and Innovation, said in the report. “CFOs’ clear focus on cash flow, cost optimization and risk management will be critical to prevent disruption of care.”
Here are five other takeaways from the report.
1. Debt repayment problems continue
More than half of the CFOs surveyed said their organizations violated bond or loan covenants last year.
Forty-one percent of the executives said their organizations may violate those terms in 2024. Covenant violations can signal that companies are heading toward bankruptcy.
2. M&A is on the agenda
Nearly 75% of executives surveyed said their organizations plan to pursue mergers, acquisitions and/or joint ventures in 2024.
About a third of organizations that violated bond or loan covenants last year plan to sell either part or all of their companies this year. Meanwhile, roughly 20% of healthcare organizations will seek out private equity or venture capital investors this year, particularly physician groups looking to expand.
3. CFOs focus on revenue cycle
Nearly 40% of healthcare executives plan to adjust their revenue cycle management to improve cash flows. Other common financial improvement strategies include cost-cutting, by potentially trimming the workforce and transforming operating models.
4. Healthcare tests generative AI
Ninety-eight percent of CFOs said their organizations are piloting generative AI tools. The most common testing involves treatment plans, clinician-to-patient communications and diagnostics.
5. Providers to invest less in primary care, behavioral health
More than 40% of CFOs said they plan to decrease investment in primary care and behavioral health, two sectors of the industry buffeted by staffing shortages. Some healthcare companies are reconsidering their primary care strategies amid cash-flow pressures and growth in retail competitors.
