The special report on not-for-profit health care, published on April 23 by Moody’s Investors Service, is useful reading for all board members, not just for those who serve on the finance committee.
The special report, “Preliminary Medians Underscore Negative Outlook,” provides a gloomy projection of profitability metrics for not-for-profit hospitals. Moody’s core observation is that these metrics have continued to decline, with margins falling to “10 year lows,” and below levels seen during the last recession. In addition, “while absolute debt levels declined, debt affordability decreased as the median annual expense growth rate outpaced the revenue growth rate” for the second straight year. Moody’s projects expense pressures, declining reimbursement and a shifting payor mix will increase the burdens on financial performance for the coming year, despite favorable volume indicators.
Not all directors are expected to be financial experts, and there is no expectation that the entire board be familiar with the financial detail typically contained in special reports from credit ratings and other investor service firms. But as financial stewards of the organization, the entire board (not just the financial committee) should be briefed on conclusions and projections contained in well-prepared reports from reliable industry experts, like Moody’s. This is particularly the case when the report reflects financially significant trends and developments.
It is certainly acceptable that the CFO summarize such conclusions and projections for the full board, in an understandable manner. Such information is often best provided in the broader strategic and competitive context; i.e. increasing pressures on the inpatient hospital model, and the fact that competing for-profit and nonprofit hospitals are similarly affected by these trends.