Many of the nation's hospitals have made impressive financial and operational turnarounds in the first quarter of 2009, apparently reversing troubling trends that only months earlier had placed a considerable portion of the sector in red ink, according to a new Thomson Reuters study released today.
"It looks a lot better than it did six or eight months ago. I expected to see some recovery, but this was a lot," says Gary Pickens, a coauthor of the study, which was compiled by Thomson Reuters' Center for Healthcare Improvement. "If you look at our previous report the big news was that hospitals' total margins—the combination of their operating and non-operating activity—had taken a huge hit because of outright declines in the stock market. As we fast forward to today we are not in that situation clearly. The total margins have recovered pretty substantially, which reflects the recovery in large part the recovery in the stock market."
An earlier Center for Healthcare Improvement report that examined the third-quarter of 2008 had found that half of the 439 hospitals nationwide that were examined were losing money, owing largely to tanking investment portfolios.
Today's report estimates that more than one-quarter of the hospitals lost money in the first quarter of 2009. That's still troubling, Pickens concedes, but the trends are heading in the right direction. The 439 hospitals examined in the report include small, medium and large community hospitals, teaching hospitals, and major teaching hospitals.
The study tracks a number of key indicators, such as operating and total margins, reimbursement rates, patient volume, elective procedures trends, and hospital employment and layoffs.
The study found that:
- Hospital total operating margins were at zero in the third quarter of 2008. In the first quarter of 2009, all classes of hospitals had positive operating margins, reaching an average of 3.1%.
- Through the first quarter of 2009, 30% of hospitals were running in the red; this is an improvement over Q308, when 50% of hospitals were operating in the red.
- Hospitals' "median days cash on hand" is holding steady; on average hospitals had 90 days cash on hand in the first quarter of 2009, a decline from the highs of 120 days seen in early 2007, but an increase from third quarter of 2008.
- As of first quarter 2009, more than 90% of licensed beds were in operation in a typical hospital, which has held relatively steady since 2005.
While the recovering stock market has played a considerable role in reversing the trends, Pickens says hospitals examined in the study have also done a commendable job managing expenses.
"They did it primarily by managing labor expenses, which is pretty remarkable because a lot of the activity is nursing related," Pickens says. "Unfortunately, trying to dissect where they are taking the full-time employees out of their operations is difficult for us. But you would think it would be in overhead-type departments, rather than direct patient care, at least you would hope that."
And though the trends are encouraging, Pickens says hospitals should be concerned about their liquidity. "The average cash on hand has gone from about 120 days to 90 days. That may not seem alarming, except that 90 days is in many cases tied to certain types of bonds or debt covenants that can be triggered if that number gets substantially lower," he says. "It's pretty clear their cash reserves were stretched out during this Great Recession. While there is some sign of recovery, the scars are still apparent in the liquidity area."
Pickens says he's seeing a softening of year-over-year revenue growth that could be exacerbated by healthcare reform. "If a public plan option is enacted or if there is some kind of expansion of the public plan that pays less than commercial payers, that will put further downward pressure on that revenue growth," he says.