OLDWICK, NJ – Under pressure from the troubled economy, hospitals are turning to their investment cash flow as a source of capital, according to a study released today by A.M. Best.

Despite decreased revenue, hospitals and healthcare systems must still support costly health information technology, facility upgrades and maintenance, and the increasing demand for charity care and other types of community services. As a result, they are focusing more attention on managing and rebalancing their investment portfolios, the study said.

Investment income typically has been viewed as an extra source of funding for various expenditures in a hospital's capital budget, supplementing cash generated from operations. As cash collections continue to be pressured, however, investment cash flow has become an important source of capital, the study said.

Between 2004 and 2007, hospitals and healthcare systems in this study Ð approximately 170 hospitals in 22 states Ð increasingly allocated a greater proportion of their invested assets to cash and short-term investments, averaging 31.1 percent in 2007, up from 27 percent in 2005.

Meanwhile, fixed income investments declined to 24.9 percent in 2007, down from 32.7 percent in 2004.

Other findings included:

(bullet) Although many hospitals have increased cash reserves, others have been seeking higher returns from other investment classes. For instance, the average allocation to mutual funds increased to 14.8% percent in 2007, from 9.4 percent in 2004.

(bullet) Since 2004, allocations to real estate investments, while small Ð comprising less than 1 percent of total invested assets Ð also have increased modestly.

(bullet) Despite greater asset allocations in cash and short-term investments, the median "current ratio" only increased by 10 basis points from 2005 to 2006 and remained flat from 2006 to 2007.

(bullet) The "days cash on hand" has also increased from a median of 135.

For a copy of the full study, email Diana Manos at diana.manos@medtechpublishing.com.