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Behind the Push to Invest in Hospitals

Philip Betbeze, for HealthLeaders Media, October 7, 2011

Revenue is forecast to improve in these industries with the implementation of the exchanges. Moreover, operating profit margins are projected to rise since commercial insurance payments make up a larger source of operating profit than government programs, such as Medicare and Medicaid. During the five years to 2011, operators in the listed industries have grown increasingly reliant on payments from private insurance. Government program payments, particularly Medicare, either barely cover the cost of providing care or reimburse at rates lower than the cost of care. Consequently, companies have been charging commercial insurance companies increasingly higher rates in order to make up for the shortfall in Medicare payments."

Well, we all know that. The key question is, can it continue? IBISWorld's argument is that more of the patient base will be covered commercially under exchanges, and that hospitals and health systems will retain pricing power.

I'm not so sure it's that simple, but if it takes a 10% annual increase in rates to draw regulatory scrutiny, maybe they're right. 

Based on their scenario, and this is a big leap in guesswork by me, maybe the reason so many investors are interested in hospitals and health systems isn't that they think the hospital itself will be profitable long term, but that it provides a natural "holding company" model in which the owned physician practices, labs, EDs and other affiliated partners bring the profits. But hey, hospitals are in the list too, so maybe they're ultimately winners as well. 

All that said, I don't know if I buy their argument. Do you? I'd love to hear from you if you agree with their conclusions.

Speaking of hearing from you, HealthLeaders Media's Industry Survey is now available. We know you have something to say. And we want to hear it. Please spend a few minutes with the survey and share your insights, which help define industry trends.


Philip Betbeze is senior leadership editor with HealthLeaders Media.
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3 comments on "Behind the Push to Invest in Hospitals"


Todd (10/13/2011 at 12:00 PM)
Dan, Good comment. Totally agree on both points. Payors are sadly so slow to innovate and just seem to love their provider networks more than helping their customers save money. Personally, I would never have surgery at a US hospital. Much more risk in my opinion than at many JCI accredited facilities.

Dan Ross (10/10/2011 at 9:57 AM)
The unending increases in hospital spending centers on two future occurances. (1) The US will fail to properly integrate patient data and continue to allow Americans to suffer from total care fragmentation and uncontrolled chronic disease. (2) American payors not will take advantage of internationally certified hospital facilities springing up in foriegn countries, targeting American patients, available at 20 cents on the dollar. India is $4 billion building 1000s of rooms in the Cayman Islands.

Todd (10/7/2011 at 5:41 PM)
If hospitals think the cost shifting will continue ad infinitum, they are sorely mistaken. Employers have had enough! A more reasonable expectation is that some of these investors think these hospitals will STOP ACCCEPTING MEDICARE AND MEDICAID and become truly private facilities. Mayo, Cleveland, Duke, are you listening? Other local facilies will be left with the losing government business. Welcome to the world of two tiered health systems like the rest of the world. Todd