The hospital C-Suite is under duress. Each day they must carefully manage their scarce resources amidst a declining reimbursement, rising labor costs, a difficult credit environment and thin margins.
As hospitals look for ways to increase the efficiency of their resource allocation MedTech suppliers must be aware of the early warning signs that the hospital they are selling to may be conserving cash or be in financial trouble and take steps to mitigate it. If they ignore the warning signs the result may be a bad debt write-off, a reduced payment or very slow payment of the receivable.
Here are some early warning signs to watch for.
C-Suite Turn-Over– Well run hospitals don’t have much turn-over in the C-Suite unless there is a planned retirement, merger or an acquisition that necessitates it. Instead they have continuity and consistency in senior level management, strategy, execution and results. Excessive C-Suite turn-over is usually a sign that a hospital is not meeting its clinical and/or financial goals and change is required. It may also be a signal that the institution has deeper problems that have not yet come to light. Be especially careful when you see changes at the CEO, COO and CFO level.
Key People Resignations– When key departmental managers or key employees that have been with the hospital for a long time leave abruptly it should be a cause for concern. This is often an early warning that something is amiss and that the key employees are leaving because they foresee unfavorable results that will require significant organizational or operational changes.
Lay-Offs- Early Retirement– Every hospital periodically adjusts it’s clinical and support staffing to meet its current census levels and net margin goals. Layoffs that exceed 3% of the total number of employees or repeated layoffs and asking employees to take early retirement are cause for concern. As an example in 2013 St. Vincent Health in Indianapolis cut its labor budget 5% by laying off 865 employees while Denver Health reduced its workforce by 5% through layoffs, attrition and a reduction in new hires.
In-Patient/Out-Patient Volume Drops– Key hospital personnel can tell you if their inpatient or out-patient volume has dropped. Look for a drop from the previous quarter and previous year. When patient volume drops variable expenses must drop immediately or their will be no operating margin.
Slow Payment– If you are an existing hospital supplier and payments for out-standing invoices have slowed and are often past-due that is cause for alarm. It’s often an indication that the hospital does not have enough days of operating cash on hand or the level is shrinking and as a result they are conserving their existing cash by not paying their suppliers on time.
Bond Ratings Decreased (NFPs) – If a Not-For-Profit hospital is not meeting its financial obligations it can face a credit downgrade. This makes it more difficult to get additional credit to meet its short-term financial obligations as well as obtain funds for capital equipment, renovation or new construction.
Quality Scores are below average or accreditation issues– Under healthcare reform hospitals are penalized for poor quality scores. When this happens the media reports it and it can be easily tracked by the MedTech provider. This is good information for the Marketing department to provide to its sales force. It’s especially useful if they have a product, service or solution that can improve the hospitals quality scores. Negative publicity causes negative public perception resulting in lower patient volumes and additional financial problems.
Market Share Decreases– This is often difficult to monitor unless the MedTech supplier has a savvy marketing department that has access to key databases on demographics, household income and payor mix. Coupled with this knowledge predictions can be made on market share by hospital. It’s the mechanism that the hospital C-Suite uses to look for opportunities for expansion in their local market.
Partnerships/Alliances Being Explored– It is not uncommon for a stand-alone community hospital to seek a partnership, alliance, merger or acquisition to stay afloat and be able to raise cash to meet its cash and capital requirements.
Parting Thoughts
In today’s rapidly changing healthcare environment it behooves each MedTech supplier to monitor carefully the financial condition of the hospitals that it sells to.
It doesn’t matter whether you are a key account manager or a sales representative that has been charged to acquire, grow or retain the business your job is to ensure that the order can be paid for in a prompt manner.
You don’t have to be the hospital’s CFO to know that the hospital you are selling to may be in financial trouble.
