Hospitals brace for reduced revenue growth

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.

• 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 tax-exempt bond market, leaving greater demand and lower interest rates for borrowers remaining in the municipal market. But interest rates rise abruptly in mid-November as markets prepare for the Build America Bonds program to end as scheduled at the end of December.
• Congress includes more scrutiny of tax-exempt 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.