Dive Brief:
- Most nonprofit hospitals and health systems had enough cash on hand to cover operating expenses for an extended period of time in 2022, according to a new analysis from KFF.
- On average, hospitals and systems reported having 218 days of cash on hand in 2022 — S&P Global Ratings generally considers 218 days to be a “very strong” level of cash, according to the report. Nearly three-quarters of nonprofit hospitals had “strong” levels of cash on hand, while about one in 10 had “vulnerable” or “highly vulnerable” levels of cash on hand.
- The metric, which estimates the number of days that an entity could cover their cash expenses using available reserves, offers nuance to reports that show struggling nonprofit hospitals, the authors wrote. Though hospitals broadly reported negative operating margins in 2022, the KFF study said many had a “large financial cushion” as of 2022 to help weather challenges.
Dive Insight:
Nonprofit hospitals spent the last year attempting to recover from a difficult 2022, which Fitch Ratings analysts called one of the worst operational years on record. Labor and supply costs soared due to inflation and staffing shortages, and hospitals suffered investment losses.
Leading credit agencies Fitch and S&P have predicted that financial troubles will continue this year as expenses continue to rise faster than revenue.
Financial troubles have spurred the hospital industry to call for increases in Medicare and Medicaid reimbursement levels — citing low profit margins and poor financial health — and campaign against site-neutral payment reform, the report said.
However, the KFF analysis argued that operating margins alone don’t paint the full picture of health systems’ financial health.
“Operating margins provide useful information about the short-term financial standing of a given hospital or health system,” the authors wrote. “However, two entities with the same operating margins in a given year may be in a much different financial position depending, for example, on their days of cash on hand.”
KFF analyzed the financial disclosures of 274 hospitals and health systems rated by S&P to determine how much cash on hand hospitals held as of 2022.
Having fewer days of cash on hand was associated with negative operating margins in 2022. Four out of five hospitals that had “vulnerable” or “highly vulnerable” cash levels reported negative operating margins in 2022.
About 10% of nonprofit hospitals and health systems had “vulnerable” or “highly vulnerable” levels of days cash on hand in 2022. The percentage would likely have been higher if the analysis included all nonprofit hospitals and health systems in the U.S. — authors noted their methodology underrepresented small hospitals, rural hospitals and hospitals with relatively low commercial prices.
However, KFF found that that some hospitals and health systems with negative operating margins had some capacity to manage challenging financials. Sixty percent of hospitals and health systems that reported negative operating margins also reported “strong” levels of days cash on hand in 2022, carrying at least 160 days and 150 days of cash on hand, respectively.
