The economic crisis will force hospitals and health systems to cut back spending on capital projects and unprofitable healthcare services in 2009, a recent study has found.
A study conducted in late 2008 by the Noblis Center for Health Innovation, a not-for-profit healthcare advisory firm, assessed the impact of the national economic crisis on the financial health of hospitals and health systems, focusing on areas such as utilization, profitability, uncompensated care, philanthropy and fundraising goals, and the status of current and future projects.
The majority of hospitals interviewed for the study experienced both dramatic losses in investment income and difficulty in finding fresh sources of capital, according to the study. Thirty-six hospitals and health systems ranging in size from 41 beds to 898 beds were surveyed. Two-thirds of the respondents were hospital CEOs or CFOs.
Following are other key findings:
- Operating profitability is a concern for many of the respondents, but not all. More than 56 percent saw a decrease in operating margin over the last quarter, and 39 percent expect their organizations’ operating margins to decrease in the next year, even with staff reductions and other cutbacks.
- The greater concern for respondents is investment losses, which were significant over the past year.
- Most participants believe utilization of their facilities will continue to grow. Seventy-one percent of participants expect inpatient utilization to increase slightly during the next year, and 82 percent expect outpatient utilization to increase.
- Philanthropic fundraising in 2008 was buoyed by a rash of major “signature” construction projects. For 2008, 27 percent of respondents reported an increase in fundraising--the same percentage that reported a decrease. However, as these projects wind down, philanthropic prospects for the near future are less certain.
- Virtually all participants who had attempted to access capital or refinance in the past six to nine months indicated that obtaining capital was difficult.
- Two-thirds of the hospitals surveyed had already halted, resized, or changed major capital projects. Several indicated that even though they had not halted or resized major capital projects, they had slowed them down.
Many of the hospitals surveyed are implementing strategies to respond to the changing economy. At the time of the study, 31 percent of the hospitals surveyed had already reduced or were committed to reducing routine capital and other spending by more than 30 percent. The study also found that a large number of hospitals had instituted a hiring freeze and were being extremely cautious about any new hiring. When asked what other strategies were being considered, the majority of respondents (74 percent) identified closure of services or locations that were noncore or losing money.
Get survey findings and successful practices related to the economic downturn from HFMA’s Healthcare Financial Pulse project, www.hfma.org/pulse.