Strug­gling econ­omy de­liv­ers hits to bot­tom line

Modern Healthcare - - SPECIAL REPORT -

The high U.S. un­em­ploy­ment rate and weak econ­omy con­tinue to strain hos­pi­tal op­er­a­tions. Slug­gish rev­enue growth spurs ag­gres­sive ef­forts to slow hos­pi­tal ex­pense growth with cuts to la­bor, sup­ply and ser­vices and ef­forts to boost pro­duc­tiv­ity. Higher bor­row­ing costs early in the year ease as the months pass. Volatile in­vest­ment mar­kets leave not-for-profit hos­pi­tals with less profit or net losses at the end of Septem­ber. A dead­locked fed­eral de­bate over how to re­duce the na­tion’s bud­get deficit leaves hos­pi­tals with the risk of a 2% across-the-board cut to Medi­care as the year ends.

Other high­lights:

Hos­pi­tals’ op­er­at­ing mar­gins con­tinue to hold ground against the high un­em­ploy­ment rate and weak econ­omy. Hos­pi­tal ex­ec­u­tives ma­neu­ver to pre­pare for what many ex­pect to be on­go­ing stress on op­er­at­ing mar­gins from slow rev­enue growth. Some reach new con­tracts with in­sur­ers for fi­nan­cial in­cen­tives tied to cost con­trol and qual­ity. Oth­ers en­ter into merg­ers or ac­qui­si­tions. Hos­pi­tals con­tinue to search for ways to cut ex­penses.

Fund­ing that pro­vided states with ex­tra fed­eral fund­ing for Med­i­caid bud­gets un­der the Amer­i­can Re­cov­ery and Rein­vest­ment Act of 2009 ex­pires as June ends.

Mu­nic­i­pal bond mar­kets be­gin the year with higher bor­row­ing costs for not-for-profit hos­pi­tals. Not-for-profit health­care bor­row­ing through Septem­ber reaches a 10-year low. As the year ends, in­ter­est rates fall and health­care bor­row­ers re­turn.

Eq­uity mar­kets swing sharply as a di­vided Congress reaches a last-minute deal to raise the na­tion’s debt ceil­ing and Euro­pean gov­ern­ments scram­ble to con­trol a debt cri­sis. Volatile in­vest­ment port­fo­lios re­duce or erase prof­its as of Sept. 30.

The CMS an­nounces fi­nal rules for Medi­care ac­count­able care, an untested but highly an­tic­i­pated re­im­burse­ment pro­gram start­ing in 2012 that of­fers hos­pi­tals fi­nan­cial in­cen­tives to slow spend­ing and boost qual­ity. Hos­pi­tals wel­come fi­nal rules with more en­thu­si­asm than a pro­posal re­leased sev­eral months ear­lier, which hos­pi­tals widely re­jected as too cum­ber­some and risky.

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