Strategic Observations  

It’s All About Cash Flow!


Healthcare is becoming more like other markets. Instead of being a “social welfare” industry that has been dependent on third party payers and investors it is becoming more focused on “cash flow”, which is the ability to generate enough cash to pay the bills and make the future investments.

                 Since the late 1950’s most health care has been funded by company programs, government legislation and private insurance. The providers didn’t have to worry about getting paid and the patients never even bothered to ask what it would cost to provide the service or the procedure.

                The results have been positive and negative.

                On the positive side healthcare has been able develop global leadership in many of the systems, equipment and pharmaceuticals. Most of the wealthy worldwide use United States healthcare facilities when they have major health issues. In addition, the vast majority of citizens have access to healthcare when it is needed.

The U.S. medical schools are preferred globally.

               But because of the ability to have access to government, corporate and private funding there is considerable waste and the cost of healthcare in the U.S. exceeds all of the developed countries. In addition, the average citizen considers healthcare, like primary and secondary education, to be a free right and doesn’t expect to have to pay for their share of the increasing costs. This has resulted in numerous laws and regulations that have further increased costs. Further since the United States is a litigious society there are major lawsuits requiring all practitioners and institutions to pay costs “mal-practice insurance”.

In short the healthcare bubble is breaking and it is now clear that all of the practitioners and organizations must learn to face the reality of economics and cash flows. Unfortunately this is not accepted by most of those in the healthcare market who assert that they are not “business people”. Just want to practice their profession of caring for their patients.

The results are numerous.

·              First of all it is reported on October 10, 2014 : “an increasing number of healthcare providers are operating 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.”

·              Second, there is an increasing number of hospitals and medical schools merging or forming healthcare networks. For instance in Connecticut eight hospitals have joined an alliance to provide purchasing and consulting. In addition there are now three major systems including the Yale New Haven system that is integrating and consolidating systems. All of these are financial based changes designed to reduce costs and increase the quality of care.

·             Third the growth of “for-profit” healthcare systems continues as well. Again in Connecticut where there is currently only one for-profit hospitals out of 28, the state legislator has passed laws that will allow Tenet to purchase three hospitals in the state and operate them as “profit oriented institutions”.

                The change in “bottom line” orientation has also impacted the small and medium sized practices. There are now an increasing number of entrepreneurial enterprises focusing on “emergency and convenient care” services competing against the emergency rooms and “internal medicine” practices. In addition the major pharmacies like CVS, Walgreen have created on site services to provide routine medical services, like providing exams, giving shots and so on. Finally, an increasing number of practitioners are refusing to accept insurance of any kind and forming “concierge practices”.

              The message is loud and clear. All healthcare practitioners and institutions must recognize that they must think and act more like a “for profit” institution or at the minimum learn and use “cash flow analyses” and think strategically about how all of the major stakeholders impact their ability generate cash. Further they now recognize that if cash flows are negative, the game is over and they will go out of business.

              In future discussions we will discuss how to calculate and use cash flow to operate your “healthcare business”, to anticipate and prepare for changes that can both positively and negatively impact it.


Bill Rothschild, CEO Rothschild Strategies Unlimited LLC