Not-for-Profit Hospitals Show Stability in a Challenging Market

While managers initially looked to salary and benefits cuts to reduce expenses, Vennekotter says they may soon have to go elsewhere. "You can't keep cutting expenses year over year when it comes to employee salaries and benefits," she says. "In terms of expense reductions beyond the low-hanging fruit of salaries and benefits, hospitals will look to transition to providing healthcare in lower-cost settings and being more efficient, which will be much more difficult to implement than reducing salaries and benefits. It's going to be more difficult for management teams to find places to cut expenses, but not impossible."

Lisa Martin, Moody's senior vice president for the Public Finance Group, says finding new ways to reduce costs will become increasingly difficult for hospital managers.

"That is because what we are talking about is reducing expenses by redesigning entire processes," Martin says. "So it is not just a question of reducing headcount. It's a question of reducing things like length of stay and improving back office support functions to reduce the amount of time between admission and discharge, which involves changing an entire process. That is a much more difficult strategy than just cutting the low-hanging fruit."