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How Hospitals and Health Systems Can Manage Liquidity

Despite the high costs to care for COVID-19 patients, many organizations now have more cash on hand than before the pandemic. Here’s what they can do to manage that excess capital.

In the early days of the COVID-19 pandemic, health systems faced a dire financial future. Their costs skyrocketed as COVID-19 patients filled emergency rooms and intensive care units. In some regions, health systems’ revenue streams plummeted after elective surgeries were halted and people stopped coming in for routine medical care.

Despite the upside-down economics of the past year and a half, many hospitals and health systems now have excess cash on hand. How? They took out loans to respond to the initial rush of patients and the increased need for additional staff and personal protective equipment. Meanwhile, some health systems delayed capital expenditures to build up their reserves. A significant portion also saw an increase in federal funding.

And while there is always a desire to prepare for another catastrophe by carrying a surplus, simply increasing the cash on an organization’s balance sheet isn’t always the most efficient approach. 

The pandemic gave health systems an opportunity to rethink and restructure their overall capital strategies. Here are three considerations for CFOs and other financial leaders as they look toward 2022 and beyond.


Plan for the Short and Long Term

During last winter’s COVID-19 surge, hospitals and health systems were focused on the short term, looking for ways to keep up with declining cash flow. But by the spring and early summer of 2021, as millions of Americans got vaccinated and hospitalizations declined, healthcare leaders started to plan for the future.

Then the delta variant appeared in the U.S. 

The highly contagious strain sent new waves of COVID-19 patients to hospitals across the country. Many ERs and ICUs were again pushing capacity; the situation was especially bad in communities with low vaccination rates. And now a new crisis—a shortage of nurses and other staff—has increased salary expenses and decreased facilities’ capacities as we move toward the end of 2021.  

The fourth surge forced many healthcare executives back into short-term survival mode. It also showed that hospitals and health systems need to be nimble and able to adjust their plans on a moment’s notice. Remember: The best financial plans focus on both the short and long term.


Cash Isn’t Always King

There are certainly worse problems than having too much money on hand. But in the current economic environment, carrying an excessive amount of cash can cost you in the long run.

Healthcare leaders should look at alternatives that work toward their organization’s goals for stability, resiliency and growth. Maybe they move some of their cash holdings into conservative short-term investments. Or they shift some of their reserves into longer-term investments in pursuit of higher returns. Or they hold onto significant returns from the asset side. 

Each option comes with its own risks. So before redeploying their cash reserves, CFOs and financial leaders should analyze their organization’s historical cash flows—in best- and worst-case scenarios. 

Some questions to consider: 

  • Do we have enough cash to weather another steep downturn in revenue? 
  • Should we consider renewing lines of credit or executing a longer tenor loan for cushion? 
  • How quickly can we respond to the next crisis? How easily can we access our reserves?
  • Where are we investing our cash now? And do we need to re-evaluate that strategy?

Having this baseline information can help determine an ideal operating cash target. And that can help determine when—and where—to invest excess cash.


Be Disciplined on Spending

It’s not uncommon for hospitals and health systems to spend millions of dollars to upgrade their equipment and facilities. That money can come from a number of sources, including operating cash, lines of credit, investments and loans.

Regardless of where the money comes from, it’s still an expense. In the current pandemic-driven economic environment—where costs and revenues can turn on a dime—CFOs and others need to ask themselves a few questions:

  • Is this capital expense 100% necessary?
  • Should we invest further into physician partnerships and digital health?
  • How are we restructuring our care continuum, given the impact of COVID on the ways our patients are accessing care?

Re-envisioning the care model allows for a re-assessment of health system investments across capital and strategic goals.


We’re Here to Help

The COVID-19 pandemic has had a profound effect on the business of healthcare. At J.P. Morgan, we have experience in the sector, and we can help hospitals and healthcare organizations navigate the ever-shifting business landscape.


© 2021 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC. Visit jpmorgan.com/cb-disclaimer for disclosures and disclaimers related to this content.

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