Blog: Continued strain, fewer options for hospitals?

Not-for-profit hospitals cannot escape a weak economy, and the sector won't get through the next few years as easily as it did the Great Recession.

That's essentially what analysts said last week in reports from two of the major ratings agencies.

As I have reported previously, hospitals came out of the worst recession since the Great Depression with solid margins. Hospitals protected those margins by holding onto cash and cuts to spending on labor, supplies or services.

But Standard & Poor's analysts said last week that 2011 could be the peak for hospital finances, which analysts predicted will deteriorate as hospitals spend money to prepare for reform and the economy continues to drag on demand for hospital care.

The sector successfully has cut expenses in recent years to offset weak revenue from flagging demand and pressure on reimbursement, but hospitals are running out of cuts, Standard & Poor's said.

“We believe that ratios peaked in 2011 and expect metrics to decline in the next one to two years as operating challenges intensify and as providers find it more difficult to reduce expenses after successive years of deep cost-saving measures,” the rating agency said.

Meanwhile, Moody's Investors Service said in a separate report the continued economic doldrums since the recession have left hospitals with more Medicaid patients and less volume.

Medicaid, the safety net insurer that typically reimburses hospitals at a lower rate than commercial insurers, accounted for 13% of gross hospital revenue in 2011 compared with 11% in 2007. Hospital admission growth, which was nonexistent in 2009 and negative (-0.4%) in 2010, barely edged upward in 2011 at 0.1%.

“The weak economy continues to soften patient demand and hospital balance sheets remain exposed to significant investment risk,” Moody's said. “On the federal level, healthcare spending is a major component of the federal deficit and will be subject to further retrenchment as Congress seeks to control federal spending on healthcare.”

So what's a hospital to do? Let me know how you're dealing with the situation, and I'll report back your comments to readers.

You can follow Melanie Evans on Twitter: @MHmevans.