Although hospitals' overall financial condition improved slightly last year, the rate of improvement has slipped, according to the latest industry review by the Center for Healthcare Industry Performance Studies.
Columbus, Ohio-based CHIPS publishes an annual study and forecast of the hospital industry's financial performance.
This year's Almanac of Hospital and Financial Operating Indicators provides a five-year performance review and analysis. Data are based on audited financial statements from 3,700 voluntary, not-for-profit hospitals; operating data from 2,200 voluntary hospitals; and Medicare cost reports from 6,000 not-for-profit and for-profit hospitals.
Bracing for healthcare reform, hospitals increased short- and long-term cash reserves as a cushion against increasing competition, CHIPS reported.
"The healthcare industry is taking profits that should be directed toward growth and facility maintenance and plowing them into cash reserves," said William O. Cleverley, the report's author and CHIPS' director.
Hospitals have improved their liquidity positions, with a median of 93 days cash on hand in 1993, up from 82 days in 1992, the report showed.
Median days in accounts receivable, meanwhile, declined to 62 days in 1993 from 65 days in 1992.
At the same time, the industry's profitability declined slightly, with total margins dipping to 4.4% in 1993 from 4.7% in 1992 (See chart).
Return on investment, adjusted to reflect cash flow before interest expense and current dollars, declined to 10.1% from 10.5% in 1992.
The study also found that prices are rising more slowly as hospital buyers insist on discounts and limited price hikes. The median rate of increase in gross price per discharge was 7.6% in 1993, down from 10.4% in 1992 and 13.9% in 1991.
The gap between financially strong and weak hospitals is widening, CHIPS reported. CHIPS analyzed a sample of 400 not-for-profit hospitals, showing most hospitals are improving their overall "financial flexibility," but at a reduced rate.
The financial flexibility index reflects profitability, liquidity, debt capacity and condition of physical facilities.
"Low-performance hospitals," or those with the lowest return on investment, showed a sharp decline in financial flexibility, while "high-performance hospitals" showed significant improvement.
The industry's financial condition is expected to deteriorate for the remainder of the decade as hospitals adjust to managed care, Mr. Cleverley said.