Struggling economy delivers hits to bottom line
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.
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.