Not-For-Profit Hospitals Eye Continued Low Revenue Growth
"We are seeing hospitals look closely at their vendor supply costs. They are looking at labor costs, reducing overtime and benefits and in some cases reducing staff. We have seen a slew of refunding in the last month, as they are trying to lower interest expenses as well. The next steps will be those more difficult to extract ongoing expenses. With healthcare reform that will have to be a complete overhaul of the way care is delivered at hospitals," Vennekotter says.
This is a transition that all hospitals are facing.
"They're in a fee-for-service world now where they're rewarded on volume," she says. "The next step is how to focus on cost and outcomes under a reimbursement model that doesn't reward volumes. It has to be about more efficiencies and patient-centered care."
Vennekotter says hospitals improved liquidity in 2011 and delayed some capital projects.
"Threats to liquidity include some very large unfunded pension liabilities that we are seeing on balance sheets as the discount rate continues to decline," she says. "The unfunded liability for defined benefits pension plans continues to rise, which is a risk in terms of draws on liquidity."
Hospitals continue to delay capital spending, Vennekotter points out. "This can't go on forever," she says. "Certainly competitive hospitals have to spend and make improvements. We think there is a lot of deferred capital out there."
"We look closely to see what the debt structure looks like as well," she says. "Many hospitals have terminated their variable rate demand obligations in their letters of credit and other liquidity facilities that are tied to that."
John Commins is a senior editor with HealthLeaders Media.
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