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If financial health is key to hospitals’ success, is your treasury fit?

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2 minute read 10 Jul 2024

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Targeted holistic liquidity management could support Swiss hospitals in reaching their financial and operational goals.

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In brief

Hospitals in Switzerland face growing pressure on margins and their financial health could be at risk.
Managing liquidity effectively is an important task involving numerous sub-processes.
A dedicated treasury function can help hospitals manage risk and create value.

The Swiss hospital market is in the midst of transformation, with a high level of public interest and political pressure leading to extensive discussions and publications on the current challenges.

EBITDAR

Hospitals in the EY analysis performed below the established benchmark of 10%

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Despite a positive revenue trend at many hospitals, operating results are falling well short of targets in some cases. The hospitals included in an EY analysis achieved an average EBITDAR margin of 2.7%, which is well below the industry’s established benchmark of around 10%. The trend of recent years points to continued pressure on margins in the coming years. In addition, many hospitals will have to make much-needed investments in new buildings and renovations as well as in digitalization, which means that their focus is increasingly shifting to liquidity.

An analysis by EY of the liquidity ratios of 20 acute care hospitals in Switzerland reveals considerable variability in liquidity among hospitals. The quick ratio, i.e., the ratio of liquid assets and current receivables to current liabilities, was between 0.68 and 12.35 for the hospitals evaluated by EY, with a median of 2.40. A large number of hospitals, then, have a value that is significantly above the target of 1 to 1.20. However, almost a third of the hospitals surveyed have a quick ratio of under or just over 1.

It is important to investigate ways to improve the collection of receivables, possibly with the involvement of health insurance companies and the cantons.

Sven Goeggel

Partner, Global Treasury Services | EY Switzerland

A similar picture emerges when evaluating the working capital ratio, which takes inventories into account in addition to cash and cash equivalents and current receivables. Examination of days sales outstanding and days payables outstanding highlights the hospitals’ struggles with working capital management. While the hospitals surveyed needed an average of around 21 days to pay their suppliers, it took an average of 45 days before they could collect receivables. It is important to investigate ways to improve this situation, possibly with the involvement of health insurance companies and the cantons.

EY’s findings suggest that liquidity could be managed more actively at many hospitals. This would not only enable hospitals to take measures to safeguard ongoing solvency at an early stage , but also to manage their capital effectively and efficiently.

Download our whitepaper to learn more about the role of treasury in tackling current challenges in a changing hospital market.

Summary

In addition to managing liquidity, a well-structured treasury function can also achieve efficiency gains, create long-term value and mitigate risks in other areas through appropriate measures.

Acknowledgements

We thank Stefan Schmid and Steffen Müller for their valuable contribution to this article.

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About this article

Photo of Sven Goeggel

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Limited, each of which is a separate legal entity. Ernst & Young Limited is a Swiss company with registered seats in Switzerland providing services to clients in Switzerland.