3 financial pain points for healthcare CFOs

The rising cost of debt issuance, lower investment returns and higher costs are three of the financial pain points facing healthcare CFOs, according to global asset manager Russell Investments.

The Federal Reserve hiked interest rates four times last year, and at least one other hike could occur this year, The Washington Post reported. Lisa Schneider, managing director of nonprofits and healthcare systems at Russell Investments, wrote in a paper that healthcare organizations could see an increased overall expense to borrow money for mergers and acquisitions and other capital projects due to the rising cost of debt issuance. According to Fitch Ratings, credit rating downgrades exceeded upgrades last year, and the trend is not likely to end this year.

Russell Investments' 2019 Global Market Outlook also projects volatile equity markets that deliver mid–single–digit returns, with more potential in other countries than in the U.S.

"Lower expected returns from the market could…trigger an increase in required cash contributions" to healthcare pension plans "if an asset/liability matching strategy has not been implemented yet," Ms. Schneider's paper states.   

“Assets earmarked for operating needs or growth in other areas may have to be diverted to the pension plan to help maintain funded status."

Additionally, Moody's Investors Service in December issued a negative outlook on the nonprofit healthcare and hospital sector, reflecting the rating agency's expectation that operating cash flow in the sector will be flat or decline and bad debt will rise in 2019.

Ms. Schneider said all three pain points could damage  healthcare organizations' credit ratings and other financial metrics, such as days cash on hand and earnings from investments.

 

More articles on healthcare finance:

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One-third of employees don't understand their medical bills, survey finds

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