By Rod Bazzani
At a time when some analysts expect the unemployment rate to reach 10 percent by the end of the year, hospital administrators face not only a daunting 2009, but likely a difficult 2010 as well. In the past, when confronted with an economic downturn, administrators may have simply hoped for the best and tried to ride it out; however, this approach is no longer a viable option. It is critical that healthcare organizations address the current economic climate to mitigate any negative impact on revenue.
Healthcare organizations tend to mirror the economic conditions of the communities they serve--in many cases, with a six- to 12-month lag effect. For example, a hospital in a community where a factory or major office has just closed may not feel the impact of this closing immediately. However, when healthcare benefits for displaced workers run their course, the impact becomes real. Healthcare administrators need to take into account unemployment and delinquency barometers such as this when guiding their organizations through economic challenges. The healthcare industry is one of a few industries that have the luxury of such lag time to for a pending downturn or upturn.
According to economic forecasting models, the rate of mortgage and auto loan delinquencies will hit their highest levels ever at the end of 2009--and these levels may only peak midway through the year 2010. The levels of delinquency have been so abrupt that it is quite possible hospitals will face difficult times for some time after the peak is reached.
A look at recent levels of 60-day mortgage loan delinquencies--a variable that is looked upon as a precursor to foreclosure--has hovered at approximately 2 percent for the better part of the decade. However, a 50 percent increase in delinquencies occurred between the end of 2006 and 2007, and delinquencies increased more than 55 percent between 2007 and 2008 to reach the current rate of 4.66 percent. These rates are expected to continue to climb in 2009 and 2010, and certain geographic areas will be hit harder than others.
Increases in delinquency rates are not limited to just mortgages. In fact, 60-day auto loan delinquencies are expected to rise from 0.88 percent at the end of 2008 to 1.03 percent by the conclusion of 2009, and 90-day credit card delinquencies are expected to rise from 1.09 percent to 1.37 percent during that same period.
What can hospital administrators do to stem the tide of this economic maelstrom? One option is to analyze data elements of this type on a national, state, and local level to understand the potential impact these elements could have on your operations, from staffing to collections. Delinquent payment in other sectors will more than likely make its way to hospital operations as well. It is imperative for hospital administrators to stay ahead of this curve and look for new ways to ensure their organizations are able to continue to thrive financially.
Rod Bazzani is Executive Vice President of Health Care, TransUnion, Chicago, and a member of HFMA's First Illinois Chapter.
