Hos­pi­tals brace for re­duced rev­enue growth

Modern Healthcare - - Special Report -

Econ­o­mists who of­fi­cially mark the U.S. econ­omy’s lows and highs declare in Septem­ber that the re­ces­sion had ended more than a year ear­lier. But a weak re­cov­ery and stub­bornly high un­em­ploy­ment leaves hos­pi­tals with less de­mand for med­i­cal care and more unin­sured pa­tients. Hos­pi­tals re­port slower rev­enue growth and flat or fewer hos­pi­tal ad­mis­sions. Mean­while, the newly en­acted health­care re­form law is widely ex­pected to slow fu­ture rev­enue growth, and hos­pi­tal ex­ec­u­tives be­gin to draft rough pro­jec­tions and pre­lim­i­nary strate­gies to pre­pare for the law’s re­duced Medi­care hos­pi­tal spend­ing, pay­ment re­form pi­lot projects and fu­ture de­mand from the newly in­sured.

Other high­lights:

Hos­pi­tals en­ter 2010 with op­er­at­ing mar­gins that had largely with­stood the weak econ­omy with the help of cuts to hos­pi­tal and health sys­tem ex­penses, say three ma­jor credit rat­ing agen­cies. De­mand for hos­pi­tal care slumps with the econ­omy. Ex­ec­u­tives re­spond with cuts to hos­pi­tal and health sys­tem spend­ing on salaries and sup­plies and cost-con­trol ef­forts con­tin­ued into 2010.

In Jan­uary, the CMS re­leases an es­ti­mate of U.S. spend­ing dur­ing the first year of the re­ces­sion, which be­gan in De­cem­ber 2007 and lasted 18 months. The 4.4% in­crease in health spend­ing in 2008 is the slow­est growth in 48 years of record-keep­ing.

The re­form law, en­acted in March, is pro­jected to in­crease the av­er­age an­nual growth in health spend­ing through 2019 by 0.2 per­cent­age points above what pro­jec­tions had fore­cast prior to the law, the CMS says.

Congress agrees to ex­tend for six months fed­eral re­lief for state Med­i­caid bud­gets in­cluded in the Amer­i­can Re­cov­ery and Rein­vest­ment Act of 2009. The eco­nomic stim­u­lus act fun­neled $87 bil­lion to states. Fund­ing is sched­uled to ex­pire in De­cem­ber, but hos­pi­tals and gov­er­nors suc­cess­fully lobby for an­other $16 bil­lion through June 2011.

Mu­nic­i­pal bond mar­kets for tax-ex­empt health­care bor­row­ers ben­e­fit in­di­rectly from the Build Amer­ica Bonds pro­gram, low­er­ing the cost of bor­row­ing for some not-for-profit hos­pi­tals and health sys­tems. The Build Amer­ica Bonds pro­gram, a tem­po­rary credit re­lief ef­fort en­acted af­ter the credit cri­sis, siphons debt from the tax­ex­empt bond mar­ket, leav­ing greater de­mand and lower in­ter­est rates for bor­row­ers re­main­ing in the mu­nic­i­pal mar­ket. But in­ter­est rates rise abruptly in midNovem­ber as mar­kets pre­pare for the Build Amer­ica Bonds pro­gram to end as sched­uled at the end of De­cem­ber.

Congress in­cludes more scru­tiny of tax­ex­empt bond mar­kets in the fi­nan­cial re­form bill, or the Dodd-Frank Wall Street Re­form and Con­sumer Pro­tec­tion Act. The law cre­ates a Se­cu­ri­ties and Ex­change Com­mis­sion of­fice of mu­nic­i­pal se­cu­ri­ties and re­quires two stud­ies of mu­nic­i­pal mar­kets by the Govern­ment Ac­count­abil­ity Of­fice. Mu­nic­i­pal ad­vis­ers are now re­quired to reg­is­ter with the SEC. Mean­while, the SEC launches a se­ries of pub­lic hear­ings on reg­u­la­tion of the tax-ex­empt mar­ket.

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