2009: The Year of Belt-tightening?

Philip Betbeze, for HealthLeaders Media, January 5, 2009

I don't need a crystal ball to tell you all that the tough financial times are likely to get tougher as we move forward into 2009. You could probably use an expert to explain all the ways this is true in healthcare so you can strategize for the new year, but you're stuck with me, so I'll do it.

OK, now for the disclaimers. If I was really any good at predictions, I wouldn't need to work for a living. But I take heart that no one else seems any better at it, because we're certainly not seeing a decrease in people who have to work for a living. Still, having covered healthcare for at least eight years now, I think I have at least some credibility on the soothsaying stump. With disclaimers that nothing is riding on these predictions, see if you agree with me.

Dozens, perhaps more, hospitals will close in 2009 due to financial insolvency. We've already seen the beginnings of this trend, with hospitals in New Jersey, Chicago, and other urban areas, mostly, closing in 2008. This is unprecedented in recent times. Despite the reluctance of politicians and the credit markets to allow hospitals in their representative areas to close in the past, we have reached a tipping point. Given the precarious nature of the financial crisis, many hospitals—especially those in big cities where the paying population is small and where there are several alternatives—aren't seen as necessities anymore. Debt is the lifeblood of nonprofit hospitals. If you can't borrow at cheap rates to fund new technology and improved infrastructure, you can't survive—and the pot of money is just too small to go around anymore. What will be interesting is whether 2009 will bring a round of closures in more rural areas that have no other hospital alternative. I happen to think it won't take long before we start seeing those.

Hospitals will continue to morph so that the traditional definition of a hospital will become obsolete: Many have speculated that there is only so much hospitals can do to remain competitive in a marketplace that is moving largely away from traditional inpatient care. Many leading hospitals and health systems have already effectively branched out from inpatient care by opening medical malls, and acquiring single-specialty physician practices and even ancillary businesses like imaging centers, as North Carolina's Novant did last year. Hospitals' business influence used to be measured in bed size. In the future, hospitals won't be the focus. The dominant business entity will be healthcare organizations—vertically integrated behemoths that dominate a state or region not only with hospitals, but with other necessary components of care that are as patient-friendly as they are profitable.

Hospitals will change their borrowing practices significantly: To be fair, a lot of this has already happened. There's no longer any significant market for auction-rate debt, and having been burned by it in the past, hospitals wouldn't use that option even if it was available. We're going back to basics with lending and borrowing, and even if traditional fixed-rate, 30-year bond offerings aren't yet the majority of hospital borrowing, there will certainly be less exotic options out there, and in the long run, CFOs may be thankful for that.

CFOs will become more strategic: Hospital CFOs used to just be numbers men. Now, they are increasingly more female, and increasingly graded more on their strategic, not reporting, acumen. Many large organizations are centralizing the main duties on which CFOs used to spend the majority of their time—essentially statistics and calculations. Today's CFOs are expected to spend more time executing the strategic priorities outlined by the CEO and board—taking an active role in finding new and better ways to finance a building or equipment purchase to wring the most margin out of these initiatives.

Hospitals will spend more prudently: In a related prediction, now that the orgy of cheap money is over, hospitals won't be so quick to order that new piece of technology that will be paid off with anticipated high volumes. With the pot of reimbursement money so stretched, those projections of high volumes can't be trusted anymore, and smart CFOs will really probe the potential revenue streams of technology and bricks and mortar before shelling out the dough to build or expand. Already, the equipment leasing industry is feeling the downturn.

I have a few more predictions that are a little more "out there," but I don't have the guts to actually put them in print. In the coming months, I suspect we'll all see some things that as of right now, don't even seem possible. Here's to an unpredictable new year.

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.
Note: You can sign up to receive HealthLeaders Media Finance, a free weekly e-newsletter that reports on the top finance issues facing healthcare leaders.
Facebook icon
LinkedIn icon
Twitter icon