Indianapolis-based IU Health has shed light on a common question in the healthcare industry: the reasons behind nonprofit hospitals often keeping a year or more of extensive cash reserves on hand.
“At IU Health, we target about 365 days of cash on hand, consistent with similarly sized nonprofit hospitals across the country,” the health system said in a Dec. 5 LinkedIn post. “Good financial stewardship means stability, resilience, and uninterrupted care for the community.”
IU Health pointed to three key factors that drive this approach:
1. Nonprofit hospitals often lack the safety nets available to for-profit hospitals. “Nonprofits can’t sell stock,” the post said. “Cash flow and borrowing is the only cushion.”
2. Patient care cannot be paused, making it essential for hospitals to pay physicians and nurses, provide critical 24/7 care and purchase supplies regardless of unexpected disruptions or economic conditions.
3. A strong cash reserve can help improve a system’s credit rating, which can lower borrowing costs. The post said better credit positioning helps nonprofit organizations invest in new equipment, finance buildings and support community health programs that can improve healthcare outcomes in the areas they serve.
