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Following the Right Turnaround Indicators

Michelle Pointe, for HealthLeaders Media, August 17, 2009

We're all looking for a sign that better times are on the horizon, whether it is in healthcare, our communities, or the nation at large. In this week's news, Cain Brothers in New York said there were 321 healthcare M&A deals worth $130 billion in the first two quarters of 2009, a 60% increase over the first half of 2008. This is a strong sign that healthcare deals—while not returning to the super years of 2005 to 2007—are on surer footing. The commentary went on to say that healthcare was the only sector that outperformed itself compared with 2008. That means healthcare will most likely be leading the charge when the economy turns around.

Stronger M&A activity is a good indicator that the economy is starting to correct itself, but what other signs should we be watching that tell us a healthcare turnaround is imminent? In the August issue of HealthLeaders Magazine, industry experts pointed to the employment rate and Medicaid reimbursement as two key external indicators to follow. One hospital CEO in Chicago even said that for every 1% increase in unemployment, his hospital system sees a 7% increase in bad debt and charity care combined. While we just heard this week that healthcare jobs are on the rise, I don't think we can say that we are in turnaround mode with unemployment hovering around 9.4% in July. And with so many state budgets still in fiscal crisis, Medicaid reimbursement continues to be in jeopardy.

While hospitals obviously are affected by what is happening in their states and the economy at large, there are also key internal indicators that tell leaders their organizations are financially sound enough to move forward with a capital plan or to purchase that big piece of equipment such as a new CT scanner, say industry experts.

"I would say the majority of them are looking internally at what is happening in their own place of business from a volume perspective, says Todd Nelson, technical director and senior financial executive/accounting, with the Healthcare Financial Management Association. "Volumes and the breakdown of where those are happening is a good marker for a lot of people to look at," he adds. Nelson and others also say hospitals are also closely monitoring their operating income and following the same metrics as credit agencies.

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