A new report from the Noblis Center for Health Innovation, a non-profit healthcare advisory firm, has found that hospitals and health systems are cutting back on both capital spending and unprofitable services as a result of the economic crisis.
Conducted in late 2008, the Noblis Economic Impact Study assesses the impact of the national economic crisis on the financial health of hospitals and health systems, including use, profitability, uncompensated care, philanthropy and fundraising goals and the status of current and future projects.
The study found that the majority of hospitals have experienced both dramatic losses in investment income and difficulty in finding fresh sources of capital.
Based on interviews conducted by Noblis and an online survey, The study included 36 hospitals and health systems ranging in size from 41 to 898 inpatient beds. Two-thirds of the respondents were hospital CEOs or CFOs.
"This study further validates general reports in the media about the economic difficulties hospitals are facing, but it also reveals pockets of optimism among some providers," said Scott Clay, senior principal for the Noblis Center for Health Innovation's Strategy and Planning practice.
Clay said the impact on use and payment appears to vary by market.
"While 32 percent of our respondents indicated a decline in utilization for the last quarter of 2008, our findings did not yet demonstrate a clear consistent trend," he said. "As the economic cycle plays out and unemployment continues to rise, as many economists expect, we anticipate a more broad-based negative impact on hospital utilization and payments."
The study revealed that operating profitability is a concern for many, but not all. More than 56 percent saw a decrease in operating margin over the last quarter, and 39 percent expect it to decrease in the next 12 months, even with staff reductions and other cutbacks.
The greatest concern is investment losses, which were significant over the past 12 months and are expected to be uncertain over the next year.
Virtually all participants who attempted to access capital or refinance in the past six to nine months say obtaining capital was difficult. Two-thirds of the surveyed hospitals have halted, resized or changed major capital projects. Several indicated that even though they have not halted or resized major capital projects, they have slowed them down.
Most survey participants believe use at their facilities will continue to grow. Seventy-one percent of participants expect inpatient use to increase slightly during the next 12 months, and 82 percent expect outpatient use to increase in the same time period.
Many of the hospitals surveyed are implementing strategies to respond to the changing economy. At the time of the study, 31 percent of the hospitals surveyed had already reduced or were committed to reducing routine capital and other spending by more than 30 percent. Hospitals described the capital expenditure cuts as "stop whatever could be stopped," "deliberately budgeted less," "prioritize what is needed" and "the only capital projects will be for replacement of non-working capital equipment."
Clay said the study also found that a large number of hospitals have instituted hiring freezes and are being extremely cautious about any new hiring. When asked what other strategies are being considered, the majority of respondents (74 percent) identified closure of services or locations that were non-core or losing money.
"Despite what other industry literature suggests, many of the executives we interviewed have a more optimistic outlook for their hospitals' future," added Clay. "Nonetheless, hospitals are taking proactive steps by curtailing expenses and re-evaluating current investments in facilities and services. The implementation of these strategies will effectively assist hospitals to ride out the economic downturn."