Looking for stronger vital signs

The weak economy and federal and state budget stress mean uncertainty for U.S. hospitals in the coming year, healthcare analysts say. Megan Neuburger, a senior director for Fitch Ratings, says forprofit hospitals managed to maintain profits through the trough of the recession, but continued stress on state and federal budgets and a weak economy raise questions about whether forprofit hospitals can maintain that performance.

It’s unclear whether weak demand reported by for-profit hospital operators in mid-2011 will persist into the coming year, she says. Meanwhile, prices paid by government payers are under pressure. Government payers account for roughly 40% of for-profit hospital operators’ reimbursement, she says.

More favorably, Neuburger says hospitals successfully refinanced debt to extend maturities past the major policy changes scheduled to take effect under the Patient Protection and Affordable Care Act. She notes that two upcoming events—the presidential election and the U.S. Supreme Court decision on the healthcare reform law expected in the summer—could eliminate some of the uncertainty surrounding the law in 2012.

Analysts had anticipated elective demand to rebound slightly in the coming year, but recent economic indicators and uncertainty created by congressional deadlock may suggest otherwise, she says.

Meanwhile, as the months of 2012 pass, not-for-profit hospitals will continue to respond to the weak economy and prepare for the upcoming expansion of health insurance under healthcare reform by seeking ways to squeeze spending on operations.

Hospital executives have moved to aggressively curb spending in recent years, as the recession slowed revenue growth and financial market upheaval created uncertainty for balance sheets.