The special research report on not-for-profit health care published on August 28, 2018, 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, “Operating Pressures Persist as Growth in Expenses Exceeds Revenue,” concludes that “not-for-profit and public hospitals continue on an unsustainable path as the median annual expense growth rate continues to exceed the median annual revenue growth rate, driving the second year of significant margin contraction.” The rate of revenue growth is expected to remain pressured, notwithstanding indications that increased M&A activity will support “absolute growth.” This is due to expected decline in reimbursement increases, slower demand and growth in reimbursement from governmental payors. Greater dependence will be placed on investment income, revenue cycle management and cost reduction strategies.
Not all directors are expected to be financial experts to any degree, 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 such as 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.