Hospitals hit by economic downturn

Forty percent of American hospitals have seen drops in inpatient admissions, according to the American Hospital Association.

In the AHA’s survey, Report on the Economic Crisis: Initial Impact on Hospitals, it’s clear that hospitals are already experiencing the effects of the economic downturn.

CEOs are considering several cost-cutting tactics in dealing with this financial crisis:

  • 56% of CEOs are postponing renovations or plans to increase capacity
  • 45% are delaying purchase of clinical technology or equipment
  • 39% are postponing investments in new information technology.

The AHA polled 736 hospital CEOs, concluding the survey in November 2008. Additional data was available from AHA’s DATABANK research, which tracks hospital trends.Between July and September, uncompensated care to hospitals increased by 8% compared to the same period in 2007.

Hospital margins fell to -1.6% in 3Q08 compared to +6.1% in 2007. Interest payments on hospital borrowing rose by an average of 15% in the period.

Thus it will be no surprise that hospital CEOs are considering cuts in their operations in administration (cited by 60% if CEOs), staff reductions (53%), and cutting services (27%).

Jane’s Hot Points: The AHA survey is telling us that the U.S. hospital microeconomy is suffering. Moody’s, the ratings agency, expects continued challenges in the hospital sector in terms of capital markets and bond ratings.

In 2009, we’re looking to hospitals to continue to upgrade, provide their communities with innovative technology and procedures, and staff up to prevent over-crowded emergency rooms. We’re also asking health providers to move along in digitizing medical records, which will require the outlay of both capital and labor — both of which are already squeezed to the bone.

The long-term gains in allocating capital to adopt and implement electronic health record systems could get obscured and overwhelmed by the short-term practicalities of providers’ needing to keep their fiscal heads above the stormy waters in 2009. If we mean as a nation to get up and running with EHRs, this is a line item that will need surgical targeting when it comes to budget- and legislative-making from the Federal government to the local level.

Keep in mind, too, that the hospital microeconomy is a substantial component of the larger national macroeconomy. Hospitals employ 5 million people in the U.S. In April 2008, I wrote about the importance of hospitals in their local economies in a post called, Why It’s Impossible to Close a Hospital.

For every dollar spent by a hospital, an additional $2 accrues to the local community, according to the AHA.

So it’s not only auto industry jobs that have spillover effects into the community.

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2 replies »

  1. This report was classic spin control, designed to distract Washington’s attention from the $43 billion in profits hospitals earned in 2007. Without the caution that investment profits, in particular, have turned, health reform advocates may have been tempted to punish the industry. The reality is that some hospitals are still doing really well, leveraging their near monopoly powers to extract absurd price concessions from health plans. They are also nearing completion of an epic amount of hospital construction, a surprising percentage of it inpatient capacity.
    Those cranes should have flown south long ago.
    The real world is a lot of have-nots (small rurals), and a smaller but significant number of haves (hospital systems), who continue printing money and taking it to the bank in Brinks trucks. You have a handful of non-profit hospital system execs flying around in their own jets, something that didn’t help the auto industry makes its case to Congress. This industry is still vulnerable, particularly to anti-trust and examination of whether those non-profits are actually putting back benefits remotely comparable to their shelter from taxation.

  2. US community hospitals had their record margins last year: 6.9% on average. They have had consecutive years of earnings growth since 2002.
    Since almost all of these are non-profits, there is no inherent reason why it is “bad” for the average margin to go down considerably from 2007 levels. In fact, it is probably better for the system, because excess profits tend to get spent on big ticket items that then generate fixed costs, and hospitals must look for new revenue streams to meet those fixed costs.
    Obviously, a negative margin is untenable over an extended period, so it is fair to say that they are “hurting” this quarter. But I hope that the non-profits will keep to their public service mission and only lay people off in this economy after the other cost-cutting measures you mentioned have been tried. Same goes for other non-profits in healthcare.