Today I was reading a piece in Healthcare Finance News concluding that now more than ever, hospitals are being judged by financial analysts by the number of days’ cash they had on hand. At the same time, the story noted that hospitals are facing some of the biggest financial stresses they’ve faced in decades, with high patient deductibles and copays leading to drops in collections, switches to risk-based compensation cutting margins and the ever-present need for EMR and other IT investment looming.
When you boil all of this down to the essentials, you’ve got a pitched battle going between the need for current liquidity and the need for future liquidity. While having cash on hand shored up for a rainy day makes analysts like Moody’s happy, failing to spend on the right IT infrastructure undercuts the chances of making it work a few years in the future.
After all, if you don’t have a current revenue cycle management system in place, payments can slip through your hands that could have been collected. Without spending the right amount in (on the right product, at least) on tools that help manage risk-based contracts, health systems and ACOs can end up losing big money on these contracts.
And even hospitals that aren’t in robust shape are betting their financial future on big EMR investments because they clearly consider it necessary to do so. For example, as I noted in a post earlier this year, Chattanooga, TN-based Erlanger Health System just committed to a 10-year, $100 million deal to put Epic in place despite its only recently having recovered from serious financial challenges.
So the question becomes whether hospitals can risk being cash-poor for now — at least by one measure — in an effort to keep the IT tools they need at hand. Obviously, there’s no one-size-fits-all answer, but industry strategies seem to offer a hint.
The reality seems to be that many health systems and hospitals feel they need to invest in IT upgrades and new technologies whether the traditional metrics fall into line or not. As scary as the regulatory issues (such as the ICD-10 upgrade) and changes in compensation are, health organizations like Erlanger are making the bet that even if it makes them uncomfortable now, having the right IT in place is a must-do.
While I’m no financial genius, my guess is that this means hospitals are going to voluntarily let key metrics like DCOH slip in favor of building for a solid future. I suppose we’ll know in five years or so whether taking such a risk pushed a bunch of hospitals over the cliff.