Up at Night What Keeps a CFO

Recession Impact on Operations Cash and Investments Capital Access Competitor and Market Responses State Budgets and Medicaid CMS and the Feds Issues of the Day

Volumes down 5% to 10% or more Charity and bad debt increasing as a % of gross patient revenue Operating margin taking an immediate negative turn Heightened efforts to flex staff and reduce expenses – no margin for error Layoffs likely, contingency plans ready Impact on ability to raise funds through philanthropy Recession Impact on Operations

Then we show the board this -

Investments lose 25%+ of their value Cash calls on fixed payer and basis swaps Revenue cycle impacted by growth in uninsured and under-insured patients Days cash on hand drop proportionately Investment earnings – what to project for the future? Capital spending must be reevaluated Major project timing significantly impacted Cash and Investments

Then we show the board this -

Auction rate securities failed Insurance and bank support for bonds difficult to get Variable rate markets are positive, but risky Fixed rate debt very expensive, requires strong credit rating Alternative means looking more attractive (e.g., monitizing MOB’s) Bond ratings a concern with weakened financial performance, balance sheet changes, debt covenant requirements, and downgrade in outlook for the healthcare industry Capital Access

And we show the board this -

Providers who issued debt for major projects just prior to market failures have strategic advantage over those pending major projects Some providers stop providing services with low margins, increasing those volumes in other hospitals Local non-profit support agencies (e.g., homeless, mental health) lose government funding, complicating discharges and increasing volumes of under-insured patients which negatively impacts payer mix Competitor and Market Responses

State budgets are cut due to economy; Medicaid funding reduced substantially State proposes increased provider tax that may not be covered by increased reimbursement; concern over use of funds by the state State implements managed care solution to lower its costs for the Medicaid population; providers at risk for denials and payment delays State needs in non-healthcare areas competing with healthcare for federal stimulus funds State healthcare reform proposes increased scrutiny of healthcare expenditures, regulation of price increases for providers and insurers which impact hospital reimbursement, increased price transparency State Budgets and Medicaid

States Wrestle with Budget Issues The “Cost Shift” Continues

President proposes to cut Medicare Advantage rates to Medicare equivalents 10%+ potential reduction on half the hospital’s Medicare volume RAC audits roll out to additional regions Healthcare Reform on the horizon with Obama Administration and appointment of Daschle to lead Health and Human Services CMS and the Feds

Healthcare System Universal Coverage Health and Human Services

Financial position and margins are challenged like never before Unusual events are the norm (recession, financial markets, etc.) Scrutiny by government and consumers is at an all-time high With so much uncertainty beyond the control of the healthcare provider, focus on what you can control (i.e. changes to debt structure, capital expenditure plans, operating budgets, revenue cycle performance, etc.) All the while, improving quality, service excellence and access to care In Closing