Financial Forecast Follies

What does HealthLeaders Media's 2013 Industry Survey reveal about healthcare organizations' financial prospects? Our newly released report, with 823 respondents who form a representative sample of healthcare leaders from a cross-section of organizations across the United States, shows big concerns about reimbursements, specific plans to fuel financial growth, and maybe a touch of overconfidence about the bottom line in the coming year.

Healthcare executives are overwhelmingly concerned about reduced reimbursements in 2013: 92% say it's the top threat to their organizations. Medicare and Medicaid payment rates are scheduled to decrease this year.

Though the effect on individual organizations will depend on their patient mix, the overall effect on the healthcare sector will be negative now that the number of Medicare and Medicaid enrollees exceeds the number of full-time private-sector workers. With readmissions penalties also taking hold, the coming year could be bracing.

Where will the shortfalls be made up? Healthcare executives tell us they will try a range of tactics. To begin with, they plan to look for adjacencies to their existing business. The top option in the Industry Survey for fueling financial growth over the next five years is to expand outpatient services, chosen by 57% of respondents.

HealthLeaders has written about hospitals' competitive moves against outpatient centers, which leaders see as "skimming" patients and revenue for profitable services.

In a similar vein, the next most popular move to create financial growth is starting or increasing promising businesses or facilities (chosen by 43% of respondents). Service line expansion comes to mind. Healthcare leaders also say they need to do a better job of marketing—both their organizations' existing offerings (chosen by 43% of survey respondents) and new businesses (30%).

A second category of expected activities to boost growth prospects is structural: entering into joint ventures (41%), acquiring physician practices (38%), and acquiring or merging with other hospitals or health systems (27%).

We wrote recently about M&A strategies for small hospitals, which are particularly vulnerable in the current climate, but the ongoing trend toward consolidation affects healthcare organizations of all sizes and types.

So with industry income likely to drop, and an increasingly competitive market in which to create new sources of revenue, are healthcare leaders despondent about their prospects in 2013? Well, no. A majority of Industry Survey respondents expect positive (45%) or strongly positive (10%) financial results this year. Another 30% say their financial results will be flat. Only 12% say the 2013 forecast is negative (9%) or strongly negative (3%).

This math doesn't seem to add up. It's unlikely that a majority of organizations will be immune from a negative climate. Can healthcare leaders really expect bad things to happen only to other organizations?

A clue to this seeming paradox may lie elsewhere in the HealthLeaders Industry Survey. We asked the respondents for their take on the state of the industry. The top choice was that it's on the wrong track—chosen by 39%. Nearly a third (32%) say the industry is on the right track, and 28% aren't sure.

Yet when asked about the state of their own organizations, the respondents overwhelmingly (71%) say they're on the right track! Only 14% believe they're on the wrong track, and for another 15% the jury is still out.

Healthcare leaders seem to have confidence in themselves and their own organizations—that's good. But it would be bad to be caught off-guard by overly optimistic forecasts. It's not too late for healthcare leaders to adopt a new resolution for 2013: take an honest look at reliable income, accounting for likely lower reimbursements.