Rebuilding financial reserves should be a top priority for nonprofit hospitals and health systems once current operational and financial headwinds have subsided, Kaufman Hall said April 24.
Kaufman Hall, a management consulting firm, examined the essential role of financial reserves in nonprofit healthcare at the request of the American Hospital Association and issued a report in April.
Five things to know:
1. With limited funding sources, nonprofit hospitals and systems rely on reserves to withstand periods of operational disruption or financial distress and continue to provide services to their communities.
2. Strong financial reserves help improve credit ratings, which assists when borrowing money for facility and technology investments at more affordable interest rates.
3. Strong financial reserves also help increase the amount of money a hospital can borrow, which functions as a safety valve for an organization needing money to cushion the effect of poor financial performance from disrupted operations or an economic downturn affecting returns on investments.
4. When all else fails, organizations can draw upon reserves to cover operating expenses until they are able to stabilize their operations or until their reserves are depleted.
5. The importance of financial reserves was demonstrated in 2022, when year-to-date median operating margins for not-for-profit hospitals and health systems remained in the red throughout the year.
Read the full report here.
