Hospital administrators are optimistic about the financial performance of their organizations during the next few years but are less excited about long-term prospects.
That's according to a biennial survey of about 5,100 hospital chief executive officers conducted by Deloitte & Touche, a Wilton, Conn.-based professional services firm.
Almost 55% of respondents expect increases in their organizations' bottom lines in 1998.
"If they're looking at today, they're feeling pretty good about it," said Ray Cisneros, Deloitte & Touche's national practice director for healthcare.
The 1998 report, which is the seventh since its debut in 1986, will be released at the Healthcare Financial Management Association's annual National Institute being held in Nashville from June 28 through July 2. (See related stories, pages 140-148.) Cisneros will present the survey findings on Monday, June 29, at 8 a.m. in the session titled "Trends of the U.S. Hospital Industry and Its Impact on You."
Extensive cost cutting during the past two years has helped lead to the higher financial expectations. About 76% of survey respondents said they have re-engineered business processes, 67% have implemented critical pathways and care management, 65% have redesigned clinical processes, and 51% have implemented outcomes measurement programs (See chart).
Growth in outpatient care also affects hospitals' financial outlook, Cisneros said. According to the survey, about 94% of respondents believe outpatient-care volumes will increase in the next year. Ambulatory services already account for more than 43% of hospital patient revenues in some suburban and rural hospitals.
"Outpatient services are moving like a freight train," Cisneros said. "We expect it to keep moving in that direction."
Currently, capitated contracts account for an average of only 9% of hospital revenues but are expected to increase to 16% in two years, the survey said.
"People expect this to grow significantly, but capitation isn't coming as fast as they see it," Cisneros said. "Part of the reason is that managed care can continue to generate savings and income without going to full capitation."
Because most hospitals are doing well financially, more than half of survey respondents indicate they are investing more in capital assets this year. More than 25% are investing the same amount as in 1996, and only 23% are investing less.
Capital spending for information technology is expected to increase nearly 20% in the next two years. Eighty-one percent of survey respondents are planning large investments in clinical information systems, and 73% said they will invest heavily in hospital financial and administrative applications. Approximately 50% will invest in physician systems and another 50% in automated medical records.
For a number of reasons, an unexpectedly significant number of hospitals believe their hospitals will remain stand-alone facilities, according to the survey. Of the 58% of hospitals that said they are stand-alone institutions, 34% believe they will remain so throughout the next five years. In 1996, 21% of respondents believed their hospitals would be stand-alones in five years.
More rural hospitals than urban or suburban facilities predict continued independence. Financial well-being and the restructuring of big investor-owned chains like Nashville-based Columbia/HCA Healthcare Corp. have contributed to this belief.
While short-term projections for the industry look positive, healthcare CEOs are more leery about the future. After two years, hospitals project net profit margins to drop to 5.5% from the current average of 6.5%. In five years, profits are expected to decline to 5.2%, according to the survey.
Falling profits are expected mainly because of issues related to the Balanced Budget Act of 1997, such as reductions in Medicare payments, Cisneros said.
The financial projections by hospital CEOs are fairly realistic, said Richard Clarke, the HFMA's president and chief executive officer.
"I agree with the findings," Clarke said. "In the near term, hospitals will see continued profitability. In the far term, a number of things will constrain prices."
Cost management is a major factor in helping hospitals increase profits, Clark said. "Hospitals specifically have worked very hard at restructuring themselves and managing their cost in anticipation of very stringent reductions in revenues and prices," he said. "I think what they're finding is that reductions are not happening as quickly as they thought."
Along with Medicare reductions, increased competition from physicians for ancillary services, pressure on hospitals to reduce prices for services, and likely HMO premium increases will reduce hospitals' net income in the future, Clarke added.
Most hospital CEOs also are wary of physician-hospital organizations. About 46% of responding CEOs report that their hospitals do not have and do not plan to have PHOs, a dramatic increase over the 13% in 1994.
Hospitals also do not plan to buy into provider-sponsored organizations. About 65% of responding CEOs said they do not plan to organize a PSO. Of the 35% who said they will, only 4% plan to seek PSO status within the next six months, 6% over the next 12 months, and 5% over 24 months.
Overall, hospitals CEOs are feeling confident about the decisions they are making now and for the future, Cisneros said. "If I had to wrap one (reason) around what we've seen, it is more confidence," he said.