Support our online development, and advance our onground research initiatives in free market economics, as we seek to showcase the brightest Next-Gen minds.
THE ME-P DISCLAIMER: Posts, comments and opinions do not necessarily represent iMBA, Inc., but become our property after submission. Copyright © 2006 to-date. iMBA, Inc allows colleges, universities, medical and financial professionals and related clinics, hospitals and non-profit healthcare organizations to distribute our proprietary essays, photos, videos, audios and other documents; etc. However, please review copyright and usage information for each individual asset before submission to us, and/or placement on your publication or web site. Attestation references, citations and/or back-links are required. All other assets are property of the individual copyright holder.
Understanding the Liquidity Crunch -with- Publisher’s Interview
By Calvin W. Weise; MBA, CMA, CPA
Hospital are struggling in the current financial crisis, and like most of us, liquidity is scarce. In general, hospitals have three sources of capital: equity from earnings, equity from donations, and long-term debt.
Equity from Earnings
Earnings generate cash, and a portion of that cash is available to fund capital investments. Besides funding capital investments, cash generated from earnings is used to fund working capital. As operations grow, more working capital is required to fund the difference between the operating receivables and operating payables since days of revenue in receivables tend to be a good deal higher than days of expense in payables. Additionally, cash on hand should increase as operations grow so that days of cash remain constant or increase. Once working capital has been adequately funded, any remaining cash generated from earnings is available to invest in capital.
Donations
Most not-for-profit hospitals engage in active fundraising to generate donations. Donations are a good source of capital in certain markets. Often, fundraising initiatives are less useful than they appear due to the costs expended in the fundraising activities. It is important to ensure that all the costs incurred in fundraising activities are properly attributed.
Long-Term Debt
Borrowing long-term debt has been an important source of capital for hospitals and will continue to be. Debt is particularly attractive due to the low cost associated with borrowing on a tax-exempt basis. Long-term debt, borrowed on a tax-exempt basis, is probably the lowest cost form of capital available to hospitals. Tax-exempt borrowing is fairly complex due to the tax regulations affecting it. Because of its complexity, the costs associated with these transactions are quite high, making it less practical for small borrowings.
Assessment
Tax-exempt borrowing transactions require many lawyers and high-priced investment bankers. Credit rating agencies and credit enhancers are also typically involved. Accessing the tax-exempt markets requires a good bit of sophistication and expertise. Despite these requirements, this capital is highly attractive to hospitals and should be used whenever possible.
Read: Dr. David Edward Marcinko’s recent interview on the current status of hospitals.
Link [unedited version]: https://healthcarefinancials.wordpress.com/2009/04/01/medical-news-of-arkansas-interviews-dr-marcinko/?preview=true&preview_id=9094&preview_nonce=d9039cf076
Link [edited version]: http://www.arkansasmedicalnews.com/news.php?viewStory=738
Conclusion
And so, your thoughts and comments on this Medical Executive-Post are appreciated. What is the financial status of your hospital, today? How has the cash flow crisis affected it; and your practice? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.
Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com or Bio: www.stpub.com/pubs/authors/MARCINKO.htm
Get our Widget: Get this widget!
Our Other Print Books and Related Information Sources:
Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759
Physician Financial Planning: http://www.jbpub.com/catalog/0763745790
Medical Risk Management: http://www.jbpub.com/catalog/9780763733421
Healthcare Organizations: www.HealthcareFinancials.com
Health Administration Terms: www.HealthDictionarySeries.com
Physician Advisors: www.CertifiedMedicalPlanner.com
Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest ME-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.
Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos
Sponsors Welcomed
And, credible sponsors and like-minded advertisers are always welcomed.
Link: https://healthcarefinancials.wordpress.com/2007/11/11/advertise
Share this:
Filed under: "Doctors Only", Health Economics, Healthcare Finance, iMBA, Inc., Investing, Risk Management, Sponsors | Tagged: calvin weise, charity care, david marcinko, for-profit hospitals, HealthcareFinancials.com, Hill-Burton Act, hospital capital sources, hospital capitalization, not-for-profit hospitals, pro-bono healthcare, SHIPs, tax-exempt hospitals |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
On Hospital “Bounce-Backs”
Not a capital, but surely a revenue source:
Herbert
LikeLike
Calvin,
Exellent post; but I too am not sure where hospitals are going to get capital in the future.
For example, demographic changes affecting hospital utilization between 1990 and 2000 include the U.S. population increasing by 13.2%.
Moreover, the shift from inpatient to outpatient care and the declining length of stay created downward pressure on demand for inpatient services, which outweighed the upward pressure caused by the increasing population.
Another demographic trend impacting the demand for healthcare services is the increase in the elderly population. The Census Bureau projects that the portion of the American population over age 65 will increase from 39 million in 2010 to over 69 million in 2030. The most rapidly growing broad age group is projected to be the 85+ population, doubling its current size by 2025, and increasing fivefold by 2050.
And, let’s not forget technology and big pharma. I suspect the Patient Protection and Affordable Care Act, of 2010, will only exacerable the “capital acquisition” problem.
Shane
LikeLike