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How Debt Ceiling Shenanigans Could Damage Healthcare

Cheryl Clark, for HealthLeaders Media, August 11, 2011

Even hospital credit ratings may be downgraded, affecting their ability to borrow money if the going gets really rough.

"Hospital rating downgrades will likely increase in the short term unless expense reductions and productivity gains compensate for stagnant or weak revenue growth," said Lisa Goldstein, author of a report for Moody"s Investors Service. "While better-managed hospitals can stave off rating downgrades, smaller hospitals are coming under particular stress."

Van Gorder, like many other healthcare executives, is slicing avoidable costs everywhere possible in preparation for the cuts, eliminating variation that adds cost. But will it be enough?

"It will be very challenging for organizations who are just starting to deal with these challenges reactively right now," he warns.

Michael Regier, senior vice president of legal and corporate affairs, general counsel and compliance officer for VHA, a Dallas-based purchasing cooperative with 1,400 hospital members, echoed Van Gorder's concerns.

There are many more cuts to come in "unspecified productivity adjustments" down the road, Regier said.

"Think of this as a basket of payment, 10% of which will be gone in three years," he continued. Considering the behavior of the market (which impacts hospitals philanthropy and portfolios), the S&P's reaction and the needs to provide high quality patient care, hospitals may not be able to reduce costs enough to avoid a fiscal calamity," Regier said.

American Hospital Association executive vice president Richard Pollack, responding by email to a request for a comment, wrote that “It will be a full-court press to work with the committee to make our views known. Our hospitals are in every congressional district in the country. Our patients are Republicans and Democrats. We are very concerned about where this is going to go.”

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