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Healthcare Suffers, Too

Philip Betbeze, for HealthLeaders Magazine, November 14, 2008
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The healthcare sector has managed to avoid much of the impact of past financial downturns. But not this time.

John Winfrey's never seen anything like this—and that's a bad thing. Because in his 35 years in healthcare, the chief financial officer of the four-hospital DCH Health System in Tuscaloosa, AL, says the malaise of the broader economy is having an impact on hospitals and healthcare businesses as never before.

"We're seeing a lot of the working medically indigent," says Winfrey, who notes that such patients have good jobs but can't or won't pay for health insurance because paying for gasoline, utilities, and just about anything else takes priority over paying for health insurance. "One of our heart surgeons just operated on a guy who's making $75,000 a year who doesn't have health insurance," he says.

That anecdote could be dismissed as an outlier if it weren't so common, he says.

Healthcare has often been seen as a safe haven in economic downturns. Steady—if otherwise uninspiring—margins came from a sector of the economy that has always dealt with much less uncertainty than more cyclical industries.

But that's changing due to a confluence of factors. Government payers are putting up hurdles to healthcare reimbursement and measuring performance like never before. Medicaid revenues, which depend on state taxes, remain vulnerable to economic downturns. Companies that never cut back on health insurance during times of recession are now doing so, and even if they don't cut workers and benefits, a large percentage of employers that once paid fee-for-service rates and accepted annual double-digit healthcare cost increases with a shrug are no longer doing so.

Falling reimbursements
DCH recorded a $5 million shortfall during the month of June because of a number of negatives, including lower patient volumes, an unexpectedly high number of uninsured, and problems with the state's new Medicaid system.

"I've never seen anything like this where you just can't make your numbers for the budget," Winfrey says. "Medicaid, because of lack of funds, is awful," he says, adding that getting reimbursed for Medicaid at 70% of cost would be good, "but in Alabama, 40% is closer to reality."

At Duke University Health System in Durham, NC, and its five major hospitals, CFO and Treasurer Kenneth Morris is seeing the same pressures. His financial picture only looks bright when compared to other hospital systems that perhaps don't have the brand cache and investment portfolio that Duke has. "We're seeing a lot of people without insurance as employers modify the plans they do provide to shift responsibility onto patients," he says.

Further, he says, a softening economy means reduction in tax revenues at the state and federal level.

Besides that, the level of healthcare inflation is such that post-election, whoever is in power will have to deal with the rising cost of healthcare and a declining amount of revenue. Duke's investment portfolio, a revenue source it counts on to cushion shortfalls in times of stress, as do many hospitals, has suffered along with the rest of the moribund stock market.

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