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Unique Cash Flow Issues Healthcare Facilities Are Facing

Written by: Michael Fragala, PhD, MBA, RN, WCC, CSPHP, AMS

The coronavirus pandemic accelerates the transformation of some traditional healthcare delivery models and creates tremendous uncertainty among all stakeholders. One of the most important ones is financial accuracy and cash flow.

Cash Flow Issues Healthcare Systems Face

Like any other business, medical practices must handle their financial transactions carefully. The events, such as the introduction of Medicare’s resource-based relative value scale, suggest that reimbursement is likely to decline in the coming years while spending will continue to rise. Therefore, it is becoming increasingly important for medical practices to be careful with their financial resources.

The guidelines for spend management in practice are no different for the healthcare sector from other industries. Essential factors to be considered:

  • Collecting the funds as promptly as possible
  • Keeping the funds in possession as long as possible
  • Returning on the funds while they’re in control

Evaporation of Clinical Revenue & Cash Flow

The American Hospital Association projects that total hospital/system losses had exceeded $300 billion in 2021. American Medical Center hospitals are certainly not exempt from this reality. Their financial challenges have even more devastating implications.

Financial fluency is key to growing and maintaining a successful facility in today’s ever-changing healthcare system. Although economic fundamentals such as accounting may seem complex or academic, healthcare leaders who understand these topics can benefit by making more intelligent business decisions for their practices.

Performing a cash flow analysis ensures cash remains available for spending. Healthcare leaders must use the cash flow statement to show the facility’s cash position (i.e., how much cash it has at any given time) and where the hospital spends its money (outflows), and where it gets its money from (inflows).

The Need for Financial Fluency

Asset management has emerged as a primary area of opportunity for hospitals and healthcare systems. Maintaining accurate data on each patient is essential to any billing and collections effort.

[FREE DOWNLOAD] Asset Management Program Implementation: A Checklist for Healthcare Facilities

Patients are mobile, and information should be updated regularly. Without accurate data, collection may be impossible. Asset management has always presented large organizations with unique challenges, leading some to underestimate the initiative favoring more significant investments in detection and response technologies.

Healthcare teams have a big job and require specialized tools and resources to succeed. An asset management program helps facilities maintain regulatory compliance, assess risk, reduce operational costs, and improve operational efficiencies.

Use Cases for Asset Management

Asset management offers many opportunities for more efficient cash flow operations, such as equipping and improving inventory management and accuracy.

Let’s look at two significant issues that asset management can mitigate:

  1. A facilities manager can manage and track massive amounts of critical systems and medical equipment required to keep the healthcare facility running with correct asset tracking systems. It also ensures that the facility remains safe, clean, and tidy, especially in the medical areas such as operating rooms, patient rooms, and laboratories.
  2. Hospital asset management can help improve the quality of care by removing barriers that prevent physicians and nurses from doing their jobs. It also helps the facility ensure it complies with all current health regulations.

Final Thoughts

The risk factors associated with a healthcare company’s cash flow cycle can threaten management’s ability to fund operations and service debt. Therefore, healthcare organizations need to quickly determine the exact reason for changes in the billing and collections cycle.

Simply recognizing that receivables cash flow has decreased is not enough. Healthcare leadership must react promptly to resolve disruptions in the process. With reimbursements falling and expenses rising, careful cash flow management has assumed an essential role in maintaining successful medical practices. Fortunately, asset management programs can maximize profitability and productivity.

Questions about leveraging asset management to address cash flow issues at your healthcare facility? Contact us.

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