Winding Healthcare’s Cash Clock

    Published on April 29, 2020 by Caylon Cannon

cashclockAs providers continue to struggle with the impacts and challenges of COVID19, they are also working to critically allocate available cash resources. To assist with this, some organizations are turning to financial models that help monitor their organizations' “cash clock” or cash burn rate. Healthcare leaders may be required to abandon conventional thinking to better align with today’s reality, or their organizations' “cash doomsday” will arrive much sooner than their models may suggest.

Conventional Clock

While each healthcare organization will have its preferred calculation/projection for cash, key elements of any cash calculation will include ADR (Average Daily Revenue) and what amount of cash (cash to charge ratio or cash as a % of net) is expected to be derived from that revenue. During these unconventional times, it is worth considering a deliberate and careful review of all calculation assumptions.

ADR Considerations

The conventional approach to forecasting cash is to monitor daily charges and derive the Average Daily Revenue (ADR). The ADR is often calculated over a 30- or 60-day window, so as to smooth volatility. To better reflect the current environment, a narrower window of 14 days is recommended, allowing for an organization’s charge entry lag. Additionally, a provider can refine this to a mid-month, weekly, or even daily calculation to better the reflect their current revenue dynamism.

Cash Ratio/Cash Collection %

The revenue mix organizations have historically experienced, are not the same as revenue generated during COVID. With the elimination of elective procedures, organizations are experiencing different collection yields from the revenue being generated. As an example, ER revenue has a different liquidity curve than OP X-Ray or Chemotherapy. Therefore, applying the old aggregated collection amounts to the current narrowed revenue streams could produce overly optimistic projections which could prove harmful. In order to produce accurate projections, revenue must be aligned with the previous collection experiences of each specific department.

In addition, another consideration to this ratio is the payer mix. With unemployment growing by the day, the loss of insurance coverage needs to be considered and adjusted for in projecting future revenues and cash recoveries. Just last week, United Healthcare reported over 475,000 commercial members dropped enrollment (

Further, as over 26M unemployed Americans have applied for benefits (this number is growing by the day), many will turn to other forms of public assistance including Medicaid. The projections of how many of these individuals will utilize the Medicaid system are not available, but this shift should be a consideration in any cash projection. 

Calculating revenue, cash collections and all other financial projections have always been a critical part of managing a healthcare organization. Now more than ever, these numbers not only define how we do business today but how and if we are able to wind the “cash clock” and continue to do business tomorrow and beyond. We must observe, prepare, and adapt in order to prevail and avoid our “cash doomsday”.

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