STAMFORD, Conn.--(BUSINESS WIRE)--Oct. 17, 2002--
Interesting Industry Perceptions and Prescriptions for Improvement Revealed
According to a recent survey of healthcare industry executives, CFOs are struggling with three primary, often conflicting issues in operating their companies. They are: managing cash flow pressures and changes in Medicare and Medicaid reimbursement formulas, a need to increase capital and operating budgets and a drive to reduce costs. However, despite these challenges, chief financial officers believe that the industry's overall health has improved over the past three years, with 77% of them rating the financial state of their companies as good, very good or excellent. In addition, 28% report significant improvements in their financial health over the past few years.
The survey, sponsored by General Electric (NYSE: GE) and its healthcare financial services group, polled 500 healthcare industry CFOs nationwide in order to gauge the financial state of healthcare companies and identify the issues most on their minds. The survey is part of GE's CFO Solutions Program, an effort aimed at helping CFOs from specific industries develop and implement the best approaches to their financial challenges.
Managing Cash Flow and Reimbursements Provide Greatest Challenges
Chief Financial Officers overwhelmingly cited managing changes in Medicaid and Medicare reimbursement formulas (41%) and cash flow (36%) as the greatest challenges to their financial health. Cash flow was the most common challenge, cited by 97% of CFOs surveyed, while reimbursement formulas were a concern of 87% of respondents.
The degree to which these issues are impacting organizations varies by sector. 47% of hospitals cited managing reimbursement formulas as their greatest challenge versus 31% for the rest of the healthcare sector. Conversely, only 30% of hospitals rated cash flow as their most pressing issue, compared with 46% for the rest of the industry.
Budgets are Increasing
Despite cash flow and reimbursement pressures, CFOs accept that budgets will be expanding. Over the next three years, 53% of CFOs expect to increase their organizations' capital budgets (those related to infrastructure), while 84% expect to grow their operating budgets (expense items). Anticipated annual increases are 11.9% and 7.9%, respectively.
Technology Needs Drive Capital Budgets
The primary contributors to increasing capital budgets are necessary upgrades in new technology and medical equipment (39%) and building expansion and renovation (25%). Hospitals are more likely than other healthcare institutions to report rising capital budgets due to increased technology needs.
However, capital budget increases are expected overall regardless of the primary business of the healthcare organization or its financial structure. Capital is being used to build new sites, add to existing ones, remodel aging facilities, upgrade equipment and provide enhanced software to improve staff productivity.
"The Center for Medicare and Medicaid Services projects that the US healthcare market will grow by 7% annually through 2010," said Rick Wolfert, president and CEO of GE Healthcare Financial Services. "In an industry experiencing this type of growth, it isn't surprising that there are huge capital needs. In fact, the survey findings reflect what we've seen in the marketplace, and that is that healthcare organizations understand the importance of managing cash flow and capital needs in facilitating growth and remaining competitive."
Labor Costs Swell Operating Budgets
Capital pressures are further intensified by a severe staffing shortage taking place within the healthcare industry. 98% of the organizations surveyed indicated that staffing was an issue, with increases in salaries (81%) and advertising (80%) listed as the most common solutions to the problem. In fact, 36% of those polled expected rising labor costs to be the single largest contributor to expanding operating budgets. A number of survey respondents commented on the labor-intensive nature of the industry and the continual pressure to increase total salary packages to stay competitive.
Lowering Costs is a Priority
Although budgets are increasing, healthcare CFOs are still strongly focused on cost reduction, with 97% of them listing it as a priority. The actions most often cited for bringing about change are instituting cost controls (77%) and quality improvement programs (72%).
Rick Wolfert continued, "We conducted this survey to better understand the issues most on the minds of healthcare industry CFOs. At GE Healthcare Financial Services, our approach is to provide our customers with a total solution to their financial challenges, and we intend to use this survey data to help us enhance our programs, products and services. From sharing GE best practices such as six sigma and quality improvement strategies to offering deep knowledge of the healthcare industry, our goal is to help customers improve their profitability and productivity."
Filling the Gap in these Lean Times
Virtually all institutions are focused on increasing revenues, with 97% intending to take at least one action this year to increase revenue for their organization. Three in four expect to use technology to stay competitive (76%) or increase productivity (74%). Interestingly, the not-for-profit sector is significantly more intent on using marketing and fundraising to raise revenues.
To fill the gap in capital and cash flow requirements that results from downward pressure on reimbursements and increasing budgets, CFOs are turning to a variety of alternative financing methods. To manage the risk of technological obsolescence, more providers are planning to increase (than decrease) the use of equipment leasing by a margin of three to one. To ease the burden of declining and delayed reimbursements, more organizations plan to increase (than decrease) the use of working capital lines of credit by a ratio of two to one.
CFOs Remain Cautious in Their Optimism
Although the healthcare industry has seen improvement in its financial health, providers have a robust agenda of revenue generation and cost cutting measures ahead of them. While there are positive drivers, such as increases in managed care and occupancy rates, negative factors such as rising labor and insurance costs will continue to challenge the industry's financial leaders.
About GE Healthcare Financial Services
GE Healthcare Financial Services is the premier provider of capital, financial solutions and related services for the global healthcare market. With $9 billion in assets, GE Healthcare Financial Services offers a full range of financing capabilities from equipment leasing and real estate financing to working capital lending and equity investing. GE Healthcare Financial Services' website is GEHealthcare.com. GE Healthcare Services is a part of the General Electric Company, diversified services, technology and manufacturing company with operations worldwide. GE Healthcare Services is a part of the General Electric Company, a diversified services, technology and manufacturing company with operations worldwide.
To obtain a copy of survey results or learn more about the resources we provide to CFOs, please visit www.gecfo.com.
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CONTACT: GE Capital, Stamford
Marissa Moretti, 203/961-2290