Nonprofit Hospital Admissions Dipped in 2009

For the first time in at least 18 years, the rate of growth of patient admissions to not-for-profit hospitals declined in 2009 over 2008, owing mostly to the economic recession, says a report from Moody's Investors Service.

Moody's began publishing not-for-profit hospital medians in 1991, and this is the first time the rating agency found slower growth from one year to the next. The median growth rate declined to .02% in 2009 from 1.03% in 2008.

"Hospitals are largely reimbursed on a per-case basis by governmental and private payers, creating a direct link between all volume indicators and hospital financial performance," said Lisa Goldstein, Moody's senior vice president and author of Flat Admissions Put Pressure on Not-for-Profit Hospitals. "We also outline how this will likely continue in 2010 and into 2011, particularly given the anemic economic recovery."

Erratic volumes in the recession's wake make it harder to predict admissions, forcing hospitals to adapt to unexpected revenue shortfalls, Goldstein said.

"Less predictability in revenue is, of course, an important factor in a hospital's credit rating," she said.

Other factors contributing to flat admissions include the expiration of COBRA benefits for many people, a decline in the birth rate since 2006, higher co-pays and deductibles required by employers, and discontinued employer-provided healthcare coverage.

The continued shift from inpatient to outpatient services is also having an impact.

"Inpatient reimbursement levels are typically higher than outpatient, allowing hospitals to cover a greater portion of their fixed and variable costs," Goldstein said. "Declines in admissions will challenge management teams to identify ways to preserve revenue and better control costs."

She said hospitals that have long focused on improving operating efficiencies and maximizing revenue through revenue cycle management and growth strategies will likely be able to compensate for admission shortfalls and produce better financial performance.

The report also looks at President Obama's healthcare reform, the shift away from fee-for-service reimbursements, and how admissions will likely become less important under bundled payments.

"Even in the best of economic times, this system will present its own challenges in terms of hospitals predicting their revenues and managing their costs to do well with bundled payments," Goldstein said.