HFMA's Healthcare Finance Outlook 2008-2013

By matching accurate forecasts with financial and operational plans, hospital leaders help ensure that their organizations have the resources necessary to fulfill their mission of patient care. To help hospitals with this critical function, HFMA has published the 2008-2013 Healthcare Finance Outlook.

Executive Summary

More than 100 leading financial executives and industry advisers responded to our survey for this report. Respondents reviewed a list of statements describing possible future changes and assessed the likelihood of each statement’s significance to healthcare finance over the next three to five years. In addition, researchers collected respondents’ individual comments on healthcare finance issues over the coming years. These forecasts are organized into four areas that drive the business success for healthcare organizations: volume, cost, pricing/payment and capital.

In the simplest terms, the story of hospital volume is inpatient versus outpatient, and hospital versus nonhospital. Hospital inpatient admissions and outpatient visits have been growing at less than 1 percent over the past five years. However, over that same time, the volume of nonhospital outpatient healthcare services has grown much more rapidly.

HFMA offers the following outlook for hospital volume:

• Hospital/physician integration will increasingly align physician incentives/agreements with business goals.
• There will be a dramatic shift in healthcare delivery to nonhospital treatment.
• Financial stress will force more hospitals to close or be acquired.
• Health systems will increasingly shift from holding models to operating company models.

The most significant components of cost are well known to hospital financial executives: labor and supplies. Labor costs are being driven by factors such as nurse and other shortages, as well as rapidly rising benefit costs. Supply costs are driven largely by the use of high-cost physician-preference items. When looking at hospital expenses in terms of inflation, the greatest increases over the next three years are likely to be seen in the areas of professional liability insurance, equipment, and supplies.

HFMA offers the following outlook for hospital costs:

• Accelerating regulatory/compliance requirements will increase demand for healthcare workers, driving up costs.
• Development and marketing of preference items and new technologies will markedly increase supply and pharmaceutical spending.
• Pay for performance/quality initiatives will add costs in the short term but help control costs in the long term.

Nearly half of hospital payment derives from Medicare, Medicaid, and other government health programs. Due to federal and state budget constraints, government payment is falling increasingly short of covering hospitals’ costs. Although hospitals continue to institute cost-control measures, they cannot make up the payment shortfall. As such, the cost of this shortfall is generally passed through to commercial payers and consumers.

HFMA offers the following outlook related to pricing and payment:

• Federal budget pressures will require cuts in Medicare and Medicaid expenditures.
• States increasingly will mandate coverage for uninsured patients.
• The 2008 presidential election will create momentum to shift access and payment.
• Health plans’ bargaining leverage will increase.
• Hospitals will provide package pricing.

Continued aging of facilities, rapid development of new technology, increased consumerism, a national focus on patient safety—all the drivers of the spending boom are still barreling down the road. Certain types of vehicles, such as derivative and swap-type arrangements are slowing, and covenants are tightening up, but overall capital sources are still available.

HFMA offers the following outlook related to hospital capital access and spending:

• The cost of capital will increase and will constrain capital spending, especially for hospitals with poor financial performance.
• Charity care/community benefit scrutiny will increasingly threaten health providers’ tax-exempt status.

Media inquiries may be directed to David Opon, dopon@hfma.org, 708-531-9600