Perspectives 2019 2020 Public Sector

92 How Not-For-Profit Healthcare Organizations Can Optimize Cash in the Age of Industry Disruption Bank account rationalization As M&A activity and industry consolidation have accelerated, it is important to not only understand the sources of consumer-to-business (C2B) revenue account flows, but also rationalize business-to- business (B2B) bank accounts across the organization. Healthcare organization expansion often leads to numerous legacy banking relationships with regional and national banks performing similar banking tasks. There may also be multiple accounts with idle cash balances as a result of completed expansion projects, old contingency reserve accounts, and dormant treasury bank accounts. Conducting a due diligence review every 3-5 years of all collection, disbursement, and trust accounts can improve operational efficiency, lower banking fees, and improve cash transparency, facilitating more effective investment of strategic, reserve, and working capital cash. Rationalizing bank accounts also gives healthcare providers the opportunity to determine which banking platforms offer the most useful tools for real-time cash management, account aggregation, and liquidity management reporting. This enables investment decisions to be made with a holistic view based on interest rate trends, investment portfolio returns, and operational business needs for liquidity. Segmenting cash into working capital and reserve or non-strategic cash enables NFP healthcare organizations to maximize yield, while ensuring ample liquidity and safety of principal. New banking tools to address today’s revenue cycle challenges As healthcare organizations merge and restructure, there is a shift underway from fee-for-service payment models to value-based care (VBC) reimbursement models. This is meant to address historical inefficiencies driven by volume vs. value. Value-based reimbursement models are structured to reward cost effective care and quality outcomes rather than fee/ volume driven performance. Healthcare finance and treasury teams tasked with transitioning their organizations to VBC models need to fully review accounts receivable billing structures and their associated bank account structures. Banks and third-party vendors can assist with new tools that leverage machine learning (ML) and artificial intelligence (AI). These tools will enable healthcare organizations to reconcile collections faster by bringing together disparate pieces of payment data and applying AI and ML to efficiently match payments received with medical invoices. In many instances, healthcare M&A activity and value-based care restructuring results in an expansion in banking relationships. Virtual accounts can help to rationalize the number of accounts held by a healthcare provider. A healthcare provider may operate across multiple states, including dozens of acute care hospitals, long-term care facilities, and clinics. Under a traditional account structure, a treasurer may need to establish well over 100 bank accounts. Virtual Accounts use a single physical bank but segregate cash flows to a number of virtual accounts, providing a means of tagging transactional activity and enabling more granular levels of transaction reporting. Virtual accounts can vastly reduce time spent opening and closing physical accounts. As the healthcare entity centralizes cash, liquidity otherwise trapped in redundant bank account structures can be pooled for investment and working capital. Implementation of virtual accounts can take place in concurrence with organizational shifts to value-based card models, or as part of periodic account rationalization efforts. Optimizing cash and investment portfolio returns; custody and securities lending As noted by Fitch Ratings, a hospital’s cash and investment portfolio and investment policy can have a significant bearing on creditworthiness. 4 In addition to bank accounts, investment portfolios also maintain cash balances that should be considered as part of any account rationalization for optimal returns. Surprisingly, uninvested cash held at custody banks has not been considered a key area of performance returns across investment portfolios in the past. After nearly a decade of near-zero interest rate returns, uninvested cash was considered statistically insignificant when evaluating overall portfolio performance. Corporate treasurers have increasingly revisited investment policies and now utilize competitive interest-bearing bank accounts and money market funds to boost cash returns while maintaining required liquidity. 4 Fitch Ratings, “U.S. Not-For-Profit Hospitals and Health Systems Rating Criteria” February 4, 2019:1-30. https://www.fitchratings.com/site/pr/10061558