Katie Miller leads Minneapolis-based US Bank’s division for large nonprofit healthcare systems. She’s been in healthcare banking for over 25 years, starting with GE Capital. One of the projects Miller has worked on recently is an optimized payment platform that consolidates payments automatically. Currently, a patient can use their credit cards 4-5 times for every visit – to pay for parking, pay a recurring bill, cover the copay, etc. Hospitals can now link all that information together for the customer into one payment file.
Healthcare Innovation recently spoke with Katie Miller to discuss the financial landscape around lending specific to healthcare systems.
Could you speak to the financial landscape around lending in the healthcare sector?
From a lending perspective, there have been many operational pressures on the health systems in the last couple of years. Financing must go on because all health systems need to keep up with their capital improvements and capital plans. I see capital expenditure continuing, but I did see a sluggish slowdown. Last year, we didn't see as many new issuances go out of the market with market rates increasing. I think people took a pause and maybe do some shorter-term financing before they want to take things out to the market again. We do expect to see a little bit more financing this year. They need to continue with their plans.
How did the pandemic affect the financing and investment rates?
In 2020, all of these systems were just inundated, but some at different times. The West Coast was inundated for a time, and then New York. The first thing that happened was that the systems were flushed with cash. You had the care sector funding that came in right away. Most of the systems were looking for liquidity in the spring and summer of 2020. As financial institutions, we wanted to support all of our clients when they had a liquidity need. They didn't know what they were going to need or not need. Most of them reached out and said, “I need lines of credit. I don't know what's going to happen.” You saw that very early on and some systems drawing on their lines of credit. Then, as the pandemic moved on, they just needed the lines of credit for emergencies because the Cares Act’s money was coming in. The government also provided liquidity through advanced Medicare reimbursements. You had a lot of money in the system.
During the first year of the pandemic, these systems were doing okay, even though elective surgeries, where these systems make a lot of their money, were zero or significantly reduced. They had a lot of excess liquidity, so they were almost masking the true effect of the pandemic with the emergency funds. Then, in 2021, you kind of started to see the cracks. You didn't have as much government funding now. You still had some emergency funding, but you didn't have as much. Then you saw some surgeries and the more profitable procedures return. But also, people weren't getting sick. Children's hospitals were struggling a little bit financially. During 2020 and 2021, the labor market saw dramatically increased prices. The nursing shortage came to be. It was predicted for decades. People started to say, “I can't do this any longer.” You had a lot of retirements, and then you needed nurses. You had these traveling nurses that were making three, four, or five times as much, going from system to system to help and making a tremendous amount of money.
Labor costs have permanently gone up. They are now part of the cost structure. You did see a few ratings decrease because of the pressures, but we see rating agencies rate through the cycle. A lot of these nonprofit hospitals have ginormous balance sheets. They're there to support the community and to support the mission. You've got this buffer to help through these operational issues. While you do see a couple of downgrades, they're not to the effect where the systems are collapsing; they just need to realign their expenses with their revenues. They rely on reimbursement rates for Medicare, Medicaid, and private insurers. Those are all on contracts. Those all have to go through a cycle to be able to increase those prices. These systems are now getting on a much more stable footing on revenues, expenses, and profitability. We see 2024 as a stabilizing year in getting everything in order.
Are you seeing ongoing trends in credit rating?
We saw some downgrades, but I think right now, the outlook that we hear from our clients is that things are stabilizing for those systems still under operational stress. There are systems out there that have not seen the same level of duress as others have. Some of the differences are regional and, depending on where the system is located, increased regulation. We do see some West Coast systems under more duress than others because of some of the regulations in those states.
How can the financial position of those hospitals be improved?
They're doing what they need to do. One system told us they couldn’t accept the Medicare Advantage plan since they were losing money. There are many systems out there that just say there are too many denials with Medicare Advantage. Now, systems are just finally saying, “No, we're not going to cover that community.” We've seen those insurers come back with a plan that says, “I'm going to have to increase my rates because you need to cover my population and client base.” We see hospital systems pushing back because they just don't have to be a price-taker.
What are some things you see that hospitals are doing right or wrong?
A lot of them are looking into operational efficiencies. We here at the bank are lucky enough to have specific solutions to provide those efficiencies. When payments come in through a lockbox, we have a payment consolidator that can electronically reconcile all the remittances and then upload them into the system at the healthcare provider, so they don't really have to touch it again. We see a lot of health systems continue to expand into making sure all their payments are in an automated fashion. The patient experience is becoming more automated as well. Patient refunds are a big part of the pain point of a hospital. Sending checks is a horrible idea. It costs a lot of money. We've got solutions that can send out requests to the patients to make digital payments. All of that is taken off of the health system. With one file, we push it to the payment, and we can decide where the patient can decide, but then we can send that payment to them. It's a huge operational efficiency for the system. It gets rid of the backroom personnel as well as paperwork.
Financial institutions can help these providers by getting the paper out of the system. We've got another solution called AP optimizer, where the health system can send us a file, and then we can decide how we make that payment. We see more treasurers focusing on this automation because they're being asked to uncover every crumb of revenue dollars. They can save from an expense perspective while still maintaining that patient experience and providing that care. When we surveyed CFOs this last year, one of the top priorities mentioned was investing in technologies that help be more efficient.
What do you see as the future of healthcare financing?
The need for healthcare is not going away. We have an aging population. During the pandemic, one of the things that happened was these virtual visits, which nobody thought would ever take off. It’s a huge time saver for the patient and the physician. I think that's going to continue from a matter of convenience. I do see technology continuing to take over. We have a couple of systems that help nurses not to be on the floor as much anymore. Patients can speak with them through a screen. Those types of efficiencies will continue. Then, there are systems for transcribing patient notes. Artificial Intelligence (AI) explorations are ongoing. Debts are not going away. Systems will need to upgrade their technology. When you look at California, there are seismic requirements for all hospitals to be completed by 2030. That’s a big capital push. The plans have to be underway today. You’ve got to have the plans in place to issue the debt and get it all done in the next six years.
