Global Hospitals Should Ready for Tough Financial Times

In response to the global economic crisis, governments and central banks around the world invested aggressively to ease the flow of credit. Initial results are positive with a rally in global stocks yesterday. But in the face of these encouraging signs, economists say credit will still be pricey and hard to get, and for now they stand by predictions of a long-term global recession.

As I reported last week, private hospitals that depend on medical travel could take a hit. With consumer spending in the U.S. down last quarter for the first time since 1991 and rising unemployment, you can expect that consumers will be cautious to part with their money.

"There's more widespread individual concern about the economy than there has ever been," says Michael Taylor, a principal at Towers Perrin. With medical travel facilitating elective and cosmetic procedures, Taylor says consumers will likely delay even much-needed elective and preventive care.

"Traditionally, that's been the case: Elective procedures go down, preventive care goes down, and even cosmetic care will go down because consumers are trying to balance across increased mortgages, energy, food prices; there's no aspect of your market basket that isn't going up, so an elective thing can wait."

David Williams, cofounder and principal of MedPharma Partners, agrees that consumers will put off elective procedures, and he says emerging global hospitals that need to make investments to attract medical travelers will have a hard time accessing capital. On the other hand, more mature hospitals have less worry about new competitors entering their markets.

"There are a lot of hospitals that have good technology, good staff, and good services, and they're looking to leverage what they already have in the market to attract medical tourists," says Williams. "If you're an established facility, and you're worried about new entrants coming in, your worry just went down."

One bright light is that the price of oil has dropped recently, so travel costs are coming down. At the same time, employers here in the U.S. might be looking to medical travel to help slash the cost of healthcare. Taylor's gut reaction is that employers are going to be conservative for a while and won't want to do anything drastic with their current health benefits, but Williams says a recession could motivate employers to look for creative ways to cut health plan costs.

"When we're in an environment where the cost for other things will decline, it's not going to be acceptable that the cost of healthcare will continue to be so high," Williams says.

Tom Johnsrud, senior consultant in North America for ParkwayHealth, Singapore, predicts that employers will start looking at cutting costs wherever they can without cutting benefits. "Employers are going to push insurers," he says. "It's a grassroots movement, and insurers will be the last to go."