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 for-profit 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 for-profit 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.
Pressure on revenue from households, employers and government is expected to continue, most immediately with the threat of an up to 2% reduction to Medicare under a law to curb the nation's deficit, says Brad Spielman, a senior analyst with Moody's Investors Service. The rating's agency maintains a negative outlook on the not-for-profit hospital sector.
States that have struggled since the recession to close deficits will continue to scrutinize Medicaid budgets for spending cuts, he said. And should the economic recovery drag, pressure on revenue from greater numbers of uninsured and patients covered by safety net insurance could significantly impact hospital finance, Spielman says. Meanwhile, he says volatile markets, which can add stress to balance sheets, increased uncertainty for hospital finance chiefs through last year.
Linda MacDonald, vice president of treasury services for Catholic Health Initiatives, says she does not expect to see markets settle soon. “We think we are in a volatile environment for the foreseeable future and we need to be thoughtful about how to position ourselves to withstand that,” she says.
MacDonald says she will likely spend the coming year working to maintain a balance between the health system's debt structure and its investment portfolio. That balance must preserve liquidity to support CHI's debt, she says.
Hospitals also face pressure to curb spending from new payment models under development by Medicare and in the private sector. In December, the CMS named 32 organizations that, as of Jan. 1, were expected to be the first to test accountable care under Medicare. The federal agency is expected to name two additional groups of accountable care organizations starting in April and July.
William Bernstein, a partner and chairman of the healthcare division for the law firm Manatt, Phelps & Phillips, says hospitals in 2012 will begin to move beyond the planning stages to test programs such as accountable care and new information technology investments.
“It's a really interesting year,” he says.
