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Is the Other Economic Shoe Going to Drop in Healthcare?

Karen Minich-Pourshadi, for HealthLeaders Media, December 7, 2009

Moody's rates more than 50 hospitals or hospital systems that operate in the regions listed in the Dartmouth College study, and 17 of those they rate are among the highest cost HRR; 16 of which are in urban or densely developed markets (only one is in a rural area). Now if Medicare cuts do pass, regardless of the reasons for the high disparity in Medicare reimbursements, those hospitals will feel it in the financials and that includes investment service rating downgrades, the Moody's report noted.

"There are a lot of moving parts in healthcare reform that go beyond the current legislation in the House and Senate version," says Mark Pascaris, vice president and senior analyst for the healthcare ratings team at Moody's Investors Service. "If efforts aren't taken to reduce the variability of Medicare spending by market, those hospitals in the higher Medicare reimbursing regions could ultimately be affected."

In these high HRR regions, the best positioned hospitals according to Moody's are likely to have two characteristics: 1) those that are part of multi-state systems that can rely on broader economies of scale and can import cost-efficiency practices from outside of their local region, and 2) those that gain the most new paying patients who are newly covered by health insurance. The most vulnerable hospitals will be stand-alone hospitals dependent on high-cost referral practices and which do not gain many new paying patients.

So those systems that manage cost reduction and find growth opportunities will succeed. It seems like such a simple equation and yet it is so difficult to enact. If the rest of the economy continues to lag in the recovery, then growth may continue to elude healthcare facilities. Plus, if Medicare cuts go through that may ultimately leads to more cost reductions at hospitals.

But we already know you can't "cut yourself to prosperity," eventually you will run out of areas to trim. That's when things won't look so good. And that's why I wonder if a "W" is on its way. Even if a double-dip bypasses the national economy, depending on what happens with healthcare legislation, it very well could still hit many hospitals nationwide.

The best a CFO can do is try to apply the principles of cost reduction and growth to the best of their ability. If it's any consolation, Moody's released another report last week indicating that the Investor's Service upgraded ratings on 20 nonprofits this year. So getting out from under the red ink is possible, and some hospitals are doing it.


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Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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