U.S. not-for-profit hospitals and health care systems focus on managing and reallocating investment portfolios

U.S. not-for-profit hospitals and health care systems continue to focus more on managing and reallocating their investment portfolios in order to provide capital stability and growth as well as building cash reserves. Investment income, which typically has been viewed as an important source of capital expansion and an extra source of funding for various expenditures in a hospital’s capital budget, now is being used to supplement cash generated from operations—as cash collections and excess margins have been strained.

In 2008:

• Hospitals were structuring their investments so that they could be more liquid. The average allocation in cash and short-term investments rose to 40% up from 32% in 2004.
• Hospitals increased cash reserves to bolster their number of “days cash on hand,” which had decreased substantially and was at a five-year low with an average of 110 days.
• There was a slight shift in hospitals’ investment allocation strategies from common equity holdings to mutual funds, in an attempt to mitigate some risk, resulting in a steady decline over the previous five years to 14% from an average of approximately 23% in 2004.
• The ratio of unrestricted cash and investments to long-term debt—an important measure—saw a sizable decrease and the cash flow to total debt ratio reached a five-year low.
• The median operating margin in this study declined to 0.5% compared with 1.7% in 2005.

A.M. Best analysts and industry experts will host a one-hour webinar beginning at 1 p.m., EST, Thursday, March 4, to review the state of finances for U.S. Hospitals and Health Care Systems. Portions of that webinar will elaborate on the content of this newly issued A.M. Best report on the financial performance of rated U.S. hospitals. Attendance is free.

SOURCE A.M. Best Company