As a follow-up to Tuesday’s (Dec 10) post, we presented an opportunity many hospitals have available through a strategic approach to managing the balance sheet financial assets. Hospitals continually search for ways to strengthen their financial foundation. To recap, a recent analysis of 37 Minnesota hospitals has uncovered a significant opportunity many institutions overlook: again - through a more strategic utilization of their investment portfolios.

These 37 hospitals collectively manage nearly $1 billion ($933.5M) in investable assets, yet currently generate only $13.9 million in annual investment income—a return of just 1.49%. With current treasury rates between 4-5%, even a conservative treasury strategy could generate between $37.3 million and $46.7 million annually—an additional $23.4M to $32.8M over current returns. This represents an additional $632,000 to $886,000 per hospital, achievable through low-risk treasury management. To put this in perspective, even at the conservative 4% return level, the additional $23.4M in annual income could fund 195 new nursing positions across these institutions. Moving to a balanced portfolio approach targeting 7% returns would generate $65.3 million annually, providing an additional $51.4M system-wide or $1.4M per hospital through a thoughtfully diversified investment strategy.

Hospitals face mounting financial pressures: declining reimbursement rates, rising operating costs, and an ever-growing demand for high-quality, patient-centered care. This reality has made it increasingly challenging for hospitals to sustain their operations solely through traditional income sources. In response, many hospital leaders are asking a crucial question: “Is there a better way to support our mission than relying on operating income alone?”

This question opens the door to an alternative approach—strategic balance sheet management. By optimizing financial assets for long-term investment, hospitals can create an additional, sustainable source of non-operating income, allowing them to reinvest in resources, staff, and services that directly benefit their communities.

In this post, we’ll explore how each approach can impact a hospital's financial outlook over the long term. We’ll look at the potential for operating income alone versus a value-based investment strategy for balance sheet assets. Using hypothetical but realistic assumptions, we’ll outline which path yields the best financial support for the organization’s mission over the next 10 and 20 years.