Standalone Hospitals: An Endangered Species?

We found out in 2008 that hospitals aren't immune to recessions. Along with the rest of us, they had to try to do more with less: They had to lay off workers. They had to cut out or delay capital projects.

Like the rest of us, their investment portfolios took a huge hit. But they bounced back hard in 2009, as those portfolios recovered, and the economy took a turn, albeit a tepid one, for the better. The recovery in the hospital sector has been documented, as Standard & Poor's released a report this week that while not glowing, showed the prospects for standalone nonprofit hospitals certainly isn't bleak.

Citing sharper expense management and revenue cycle improvements, the report used terms such as "improvement in operating metrics" and "signs of stabilization" and "overall improvement in balance sheet medians," all of which is fancy finance talk for "things are looking better."

Still, long-term stressors remain.
In the short term, hospitals are still waiting for word from new CMS chief Donald Berwick on whether they will get relief from the proposed 2.9% reimbursement cut from Medicare, known as the "coding offset." Further, they are dealing with long-term structural issues that many predict will leave much less room for standalone hospitals in the near future as healthcare consolidates under payment and IT stressors that leave smaller facilities unable to compete with their better-financed, bigger brothers.

If your hospital is attractive financially, has a good payer mix, makes a margin, and dominates its local area, it's a fat target for larger systems that see growth and scale as the way to thrive under healthcare reform.