Why Healthcare Providers are (Cash) Poor While Healthcare Costs are High

Part One

The climbing cost of healthcare has been among the top issues in this year’s elections, and it should be on your list of concerns too, because within the healthcare industry lies an immensely untapped potential for financing that is in dire need of your cash flow expertise. Allow me to explain the situation and then show you where you fit into the healthcare financial equation.

According to the Agency for Healthcare Research and Quality’s Web site, the United States spends a larger portion of its gross domestic product (GDP) on healthcare (nearly one-seventh) than any other major industrialized country, and it has been one of the fastest growing areas within the federal budget for the past several years. In other words, a large portion of all U.S. economic expenditures (14 percent or $1.2 trillion) is spent on providing healthcare to Americans. On the surface, this appears to be a good thing because if more money is budgeted for healthcare, then more people can benefit from it. Yet there’s an underlying irony’an increasing number of healthcare providers continue to operate in the red. In fact, according to the American Hospital Association, one-third of America’s 5,000-plus hospitals are actually losing money, while another one-third is barely breaking even.

So who’s to blame for this financial crisis? Most would assume that healthcare institutions are the ones to blame. It is easy to jump to the conclusion that the institutions are abusing the system and that they are not using their allotted sums appropriately. However, in reality there are a number of culprits on the playing field, and only one of them is healthcare institutions. An aging population, an increasing number of uninsured Americans and slow-paying government aid programs all play a part in cramping the budgets of hospitals, physicians, employers and consumers.

Over the past 50 years, our nation’s population has aged significantly. The Baby Boomers are quickly approaching their 65th birthdays, which will place them in the oldest adult segment of the American population. (In fact, the U.S. Census Bureau projects that over 20 percent of the American population will be included in the oldest segment by 2050). According to The 2003 Chartbook on Trends in the Health of Americans, the surge in elderly adults will place tremendous stress on America’s healthcare system during the 21st century, because additional services will be necessary to treat and manage their chronic and acute health conditions. Not to mention there will be over 40 million retired elderly adults depending solely on Medicare to cover their medical bills next year, a problem that I will delve into later in the article.

In addition to the ‘baby boom’ generation getting older, our younger generation has received the short end of the stick when it comes to healthcare coverage. Medicaid usage and the percent of uninsured Americans has been on the rise since 1984. The 2003 Chartbook on Trends in the Health of Americans reported that in 2001, adults aged 18-24 were most likely to lack health insurance coverage (16 percent went without for the year) and those 55-64 were least likely. In addition, the Denver Post reported that the number of uninsured young adults aged 25-34 ‘jumped dramatically’ during 2003, from 9.8 million to 10.3 million. Rising health insurance premiums and overall poverty rates have both contributed to the 45 million Americans who went uninsured last year, as reported by The New York Times.

For example, expensive healthcare premiums make it harder for employers to afford coverage for their employees, creating an uninsured working class. According to the Washington Post, the proportion of the working class who received health insurance through their employers fell to 60.4 percent in 2003, (down from 61.3 percent in 2002,) the lowest level in a decade. Within that uninsured working class, 20.6 million people were full-time employees. Add in the fact that emergency rooms are obligated to care for any patient that comes through their doors, regardless of whether they have insurance or not, and what do you get? Answer: Millions of uninsured people who visit the emergency room to receive medical attention and who also rely on the hospital to foot the bill.

To make matters worse, the U.S Census Bureau reports that poverty rates have been steadily increasing over the past few years (12.3 percent in 2002, translating to 34.6 million people, see figure 1), forcing a majority of the less fortunate population to either go uninsured or rely on Medicaid to pay their medical bills. Neither option is a promising solution to the healthcare cash crunch equation because the facilities cannot count on being recompensed directly and adequately for their obligated medical actions. Hence, the increase in uninsured Americans and those who rely solely on Medicaid and Medicare has had a tremendous affect on the United States’ healthcare institutions.

Title XIX of the Social Security Act, commonly known as the Medicaid program, is the largest source of funding for medical and health-related services for America’s poorest people. However, since its launch in 1965, Medicaid’s costs have rapidly increased, paying an average of $3,935 per person to healthcare vendors in 2000, as reported by The Official U.S. Government Site for People with Medicare (www.medicare.gov). On the other hand, the Medicare program was created in 1965 under title XVIII of the Social Security Act. Designed to provide basic hospital and medical coverage for adults aged 65 and above who are no longer working and therefore are unable to pay for healthcare, Medicare’s costs has also increased rapidly, and it currently covers 41 million Americans.

Although Medicaid and Medicare programs can be beneficial for underprivileged and elderly Americans in need of healthcare, American medical institutions and their vendors don’t fare quite as well in this cash crunch equation due to sluggish and inadequate payments from the above federal programs.

Because each state has its own unique way of filing for government healthcare coverage and because of capped expense amounts, federal insurance plans like Medicaid and Medicare make their payments slowly, sometimes taking months to deliver funds and in many cases, the government-mandated payments don’t cover the actual cost of providing care. Accordingly, healthcare institutions such as hospitals and nursing homes take a longer time to pay their own invoices. As a result of their inadequate financial resources, these hospitals and nursing homes suffer from dwindling human and technological resources. So in an effort to save money, facilities are forced to make cuts in staffing and special treatment programs, pass on costly technological advances and start outsourcing more general positions, which creates a whole new world of vendors who sell to hospitals and nursing homes. (Think: janitorial services, cafeteria workers, temporary nurse staffing agencies, medical staffing and medical transcriptionists, to name a few.)

Here is where you enter the equation. As cash flow consultants, it is your mission to ‘make the cash flow’ in companies, is it not? You take it upon yourself to find businesses needing funds, and then you match the client with a company who can supply them with adequate working capital. When searching for funding, it is imperative that you understand your client’s business, and it is equally as important for the actual company providing the funds to understand your client’s business. A bond is made between you, your client and the funding company, which means that all parties involved need to be familiar with the others’ intentions and wishes going into the deal in order to make the best financial arrangement. But with so many different types of funding to choose from, vendors look to you to help them sift through the information, which makes it even more critical for you to understand your client’s business and their specific funding needs. This can be challenging when working exclusively with vendors serving healthcare institutions because it is such a specialized industry, filled with unique working opportunities, complicated lingo and elaborate payment methods.

So let’s revisit that cash crunch equation once again. Healthcare institutions need money to help patients, increase technology and pay their vendors. But because it sometimes takes months for hospitals and nursing homes to be paid for their services, they are forced to take additional months to pay their own vendors for their services. In the meantime, those vendors suffer because they can’t make payroll or pay taxes. So they reach out to consultants like you to help them find a way to stabilize their cash flow. Lucky for you, you understand their frustrations with the healthcare financial crisis (on account of this article), and you are fully capable of setting up a deal with a funding company who also understands the healthcare industry. And thus, the cash crunch equation is solved thanks to you.

Want to learn how you can help even more? Stay tuned for the next blog post, which will go into further detail about the financing options that are available to these vendors, and find out which one holds the missing piece to the healthcare cash crunch puzzle.

NOTE: The Cash Poor Series was initially written as a three-part series written by Nikki Flores for the American Cash Flow Journal, which is no longer in publication. It was also published on PRN Funding’s web site.

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