Painful cash crunch leaves few good options

Wed, 12 Mar 2008 07:59:59 -0400

Painful cash crunch leaves few good options

Wow, things are still painful out there. Even if your facility had auction-rate bonds outstanding, and managed to bail out of them successfully, you're not necessarily in the clear.

If you assumed that you could turn to other standard financing sources, such as revolving bank loans and asset-based lending, don't be so sure. Of late, banks are pulling out of revolving loans, and even asset-based lenders are getting a bit gun-shy, according to the financial press. And it's hard to say when things will loosen up.

Of course, this issue extends well beyond healthcare providers, but given the cash flow issues providers face--with health plans holding them hostage--it's a particularly nasty situation. That's especially true given that many hospitals, in particular, have massive capital projects planned, both on the facilities and IT side of things.

Of course, providers do have other financing options, such as factoring their receivables, but those come at what can be a pretty high price, and they can be complicated to administer. (Besides, if I were a factoring company, collecting from health plans would not be my favorite line of business.)

Given these pressures on liquidity, it's hardly surprising that many providers are beginning to demand patient co-pays and deductibles up front (see story, below). But asking for big up-front payments can lead to charges that you're squeezing out the poor--particularly if you're a non-profit--so you pay a price for this approach too.

The bottom line is that providers are going to be sweating bullets for a while as the banking industry recovers from the subprime lending catastrophe. In the meantime, managing your cash is going to be a one-day-at-a-time kind of thing. - Anne