The balancing act of maintaining liquidity is that cash—while protective if something bad happens—isn’t producing much return. Health
That’s why financially healthier systems like Mayo, Ascension and Kaiser Permanente opt to keep relatively little actual cash on their balance sheets and instead invest the majority of their money, ensuring they keep a certain amount in short-term funds so it can be accessed quickly.
“Being in that market is better than it sitting in the top drawer earning zero interest,” said Kevin Holloran, senior director with Fitch Ratings.
Mayo is an extreme case, with just $51 million in cash and cash equivalents as of Sept. 30, 2020, or a cash-to-assets ratio of 0.2%, among the lowest in the country. Mayo’s cash was even lower at the same point in 2019.
“We don’t leave much in pure cash,” Dahlen said. “Most of it does go into our liquidity funds. Cash flow from operations is put to work almost immediately in our working funds.”
One of Mayo’s neighbors to the north, Children’s Minnesota in Minneapolis, also has one of the country’s lowest cash-to-assets ratios: just 0.3% as of Sept. 30, 2020. The health system had just shy of $5 million in cash and cash equivalents as of that date.
Brenda McCormick, CFO of Children’s Minnesota, said the health system maintains ample liquidity through its credit lines, federal relief grants and other means. Like Mayo, it strives to invest as much money as possible.
“We have such a low-interest environment right now,” she said. “Our investment office is looking at how we maximize those returns.”
St. Louis-based Ascension had $688 million in cash and cash equivalents as of Dec. 31, 2020, a cash-to-assets ratio of 1.5%. That’s a small portion of its $25.5 billion portfolio of cash and investments. Almost $25 billion of that is in long-term investments. Ascension declined to comment.
Kaiser Permanente also maintains a small cash balance relative to its size: $674 million as of Dec. 31, 2020, or 0.8% of its total assets. The Oakland, Calif.-based health system also draws liquidity from its sizable current investments, which stood at $8.4 billion as of that date. Tom Meier, Kaiser’s senior vice president and treasurer, explained that as a pre-paid system, Kaiser also gets a monthly influx of revenue from membership dues, which lowers its liquidity needs relative to other systems.
Not every health system has the wherewithal to keep small cash reserves. Those with volatile operations and weaker margins typically need to keep more cash on their balance sheets, Holloran said.
“As a rough rule of thumb, the more stable your operations are, the more aggressive you tend to get with your investing and the weaker or more thready, the more conservative you get,” he said.