AHA: Hospitals in Critical Condition

HealthLeaders Media Staff, April 27, 2009

Many of the nation's hospitals are in critical condition with most complaining of declining financial health, according to a new industry survey.

The American Hospital Association query of more than 1,000 members nationwide paints a bleak landscape of a healthcare system that finally has been mired in the deep recession that has all but paralyzed the rest of the economy for the past year. "We are being impacted like everybody else," says Chris Van Gorder, president and CEO of San Diego-based Scripps Health. "In particular for us, we are seeing reduced reimbursement, increased numbers of uninsured, and access-to-capital challenges. We are seeing a triple storm." "I wish I could say I'm surprised but I'm not. Hospitals and healthcare tend to get affected about six months after the general economy starts to sour," Van Gorder says.

Among the findings: Hospitals everywhere report growing numbers of uninsured, and Medicare/Medicaid patients in their emergency department, as state unemployment rates reach double-digit heights not seen in at least 25 years.

The demand for charity care and subsidized services is increasing, even has charitable contributions decline. Nine in 10 hospitals have made cuts to address economic concerns. Nearly half have cut staff. Eight in 10 have cut administrative services. One in five hospitals has cut subsidized community services that include behavioral health, post-acute care, patient education, and clinics.

Even with the program and administrative cuts and layoffs, seven in 10 hospitals report a decline in overall financial health that is impacting their ability to provide care in their communities. Forty-three percent say they expect losses in the first quarter, up from 26% for the first quarter of 2008.

Nearly every hospital reported that their capital situation had either not improved or deteriorated since December, while 80% of hospitals report cutting capital spending for facilities upgrades, and clinical and information technology. Eight in 10 hospitals report that physicians are more financial support from hospitals, including on-call pay and employment.

The survey of 1,078 community hospital CEOs was compiled in March, and the results were released today to coincide with the opening of the AHA's Annual Membership Meeting in Washington, DC. Caroline Steinberg, vice president for trends analysis at the AHA, says the survey results won't come as breaking news to most hospital executives attending the meeting.

"They are the ones who gave us the news," she says.

Steinberg says there is little positive news to glean from the survey. "The fact that overall employment in hospitals is still at least steady is a good thing," she says. "But healthcare has historically been a source of growth and the notion that it is recession proof is certainly being challenged by the results of this survey."

The economic health of individual hospitals usually mirrors the economic health of their region. "Hospitals in New England and mid-Atlantic were already struggling and those hospitals have been quicker to make cuts," she says.

"You also see the areas where job losses have been the greatest in the Midwest and the manufacturing belt. Those hospitals are struggling. It's less so in the mountain states that aren't as heavily manufacturing."

"This time of economic woes really brings to light the problems with our healthcare system and people being dependent on employment for their insurance," she says.

Although the survey was taken after the release of the $787 billion economic stimulus package, Steinberg says there is no evidence to show that it was impacting the healthcare sector. "Hospitals are reporting that the situation with respect to access to money to make investments in facilities and equipment has really not gotten any better," she says.

Steinberg says there is widespread concern in the hospital industry that Congress and the Obama administration might be tempted to cut Medicare/Medicaid payments. AHA members at this week's annual meeting will be to warmly encouraged to "tell their stories" to lawmakers.

"Healthcare is 15% of the economy and hospitals are one third of that, so ensuring that the federal government maintains its commitment to Medicare and Medicaid remains a top priority with us," she says.

Michael Sachs, president and CEO of Sg2, the Skokie, IL-based healthcare intelligence firm, says hospitals shouldn't necessarily view the recession as a complete negative. He says the down economy provides an excellent opportunity to improve operations and develop efficiencies.

"It shouldn't be a cause for despair," he says. "Whenever there is change, there is opportunity, and this has been dramatic change. The growth is going to come in three areas," he says. "One is where there is opportunity to move business from a competitor, either acquiring a competitor by moving or acquiring physicians. Second, they have to look at their marketplace and opportunities to package and develop new products, reach out to physicians and patients in ways they haven't done before. Third, change the mindset of managers away from running day-to-day operations to being change elements for growth and development."

Sachs believes the recession and its reverberations will prompt healthcare mergers in selective markets around major metropolitan markets. "Right now there is a little bit of reluctance for a financially strong organization to acquire or merge with a financially weak organization because of the anxiety about the current conditions," he says.

"In six months, those discussions may be pursued selectively if the strong organizations can see an opportunity to exploit some market position with the weak organization."

Van Gorder says the recession has refocused the "sense of mission and loyalty" at Scripps Health. "Our employees are grateful that we are trying to be as committed to them as we can be," he says. "I'm seeing more collaboration and support from our physicians, who we keep very well informed about what is going on in the economy. There are absolute operational positives that come out of crises like this."

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