As the nation’s healthcare industry grapples with the impact of the first wave of COVID-19, many hospitals are facing fiscal pressure. This is particularly true for providers who fall into the following categories:

• Providers who are or were partially overwhelmed with COVID-19 patients, experienced shortages of PPE and significant staff stress, all of which tested systems and leadership like never before.
• Facilities that were forced to shut down revenue-producing operations while they stocked up on supplies and urgently prepared for patients that never came. One hospital CEO said of this experience, “I have never worked so hard to take care of such few patients.”
  
  

Despite the individual circumstances, the outcome of this crisis is all too consistent for hospitals: even the largest, best-capitalized hospitals are now facing financial issues that will require focused, intentional efforts to resolve. The situation is particularly challenging for organizations that were operating with razor-thin margins before the crisis.

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For an organization on a short cash runway, here are some recommended action steps to consider.

Assess your Cash Flow

Given how rapidly the economy is shifting and the resulting impact on the healthcare industry, hospitals looking to best position their organizations for the future should fully assess their finances and outline a plan to cover near-term cash obligations. Start with a detailed, day-to-day cash flow forecast which outlines specific sources and use of cash to highlight potential vulnerabilities. An understanding of the hospital’s cash runway is the key factor in determining the organization’s flexibility and is necessary for the creation of a focused recovery plan.

Determine Your Sources of Cash Flow

Sources of cash are less predictable, and the ability to project cash flow is more difficult because historical A/R valuations are now less relevant. It will also be difficult to develop accurate estimates of the hospital’s potential exposure to unreimbursed and potentially non-reimbursable COVID-19. While a large number of funds were made available through the CARES Act and other stimulus and recovery legislation, it’s unclear when those funds will be available. Likewise, emergency loans, grants, reimbursement for extraordinary expenses, and other sources of cash are important but are subject to both local and national political winds, making timing difficult to predict. Investments have dropped in value and may require liquidation while they are underwater.

Identify Uses of Cash Flow

Uses of cash require close review:

• Hospitals in distress need to draw down all available lines of credit immediately to create a cash buffer before lenders reconsider their
• Normal operating expenses may have increased for the limited caseloads hospitals have experienced, while furloughs and other actions taken as a result of the crisis may have reduced normal operating expenses.
• Losses to investment portfolios have, and will likely continue to have, an added non-cash impact as hospitals face “mark to market” and/or increased balance sheet reserves for Defined Benefit Plans. This may also create a need to fund benefit plan shortfalls.
• Hospitals should consider the impact of delaying all non-essential vendor payments to conserve cash.
• It is also important for hospitals to determine the timing of payments and notices for all debt, lease, and rent payments that have recourse.

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