Hospitals already squeezed by investment losses and tight credit are increasingly dependent on yet another source of cash threatened by the sour economy: consumers.
Harder than ever
Economic crisis puts pressure on operations
As the downturn persists and job losses mount, fewer patients are seeking care, and more of those who do have safety net insurance or medical bills that go unpaid, say analysts, consultants and industry executives. That has added to a worrying drag on hospital patient revenue as states slash healthcare spending and insured patients delay elective medical care.
Hospitals and health systems have scrambled to shore up cash reserves drainedsometimes painfullyby stock market volatility and the credit crisis (Feb. 23, p. 16). Such losses have increased pressure on hospitals to maximize operating revenue and profits, say industry analysts and consultants, even as the nations prolonged economic woes have left consumers facing equally daunting financial stress.
Its more important than ever, and its harder than ever, said Jeff Jones, of the need for healthy hospital operations. Jones, a managing director with Stockamp & Associates, a healthcare finance and operations subsidiary of Huron Consulting Group, said demand for healthcare slumped last summer and grew more anemic as the economy worsened last fall, a trend that has continued this year.
In the final months of 2008, the economys rapid descent slashed employmentthe nations principal source of health benefitsby more than 1.6 million jobs and cuts accelerated in the first three months of this year.
That has pushed patients into publicly subsidized plans that do not pay hospitals as well as commercial insurers, hospital executives say, and increased the amount of care hospitals must write off for those with no coverage whatsoever.
Ken Rodgers, a director in healthcare public finance with Standard & Poors, said analysts have noted an increase in unpaid medical bills that has added to stress on hospital balance sheets from investment losses. In February, Standard & Poors reviewed or assigned a new rating or outlook for 61 not-for-profit hospitals or health systems, and for one-third the result was unfavorable, he said.
Hospitals surveyed in March by the Healthcare Financial Management Association noted that revenue fell as the recession continued last year (See chart).
Lakeland HealthCare, St. Joseph, Mich., suffered a pointed reversal in patient demand as the economy soured. The two-hospital system closed its books in September 2008 with higher-than-expected patient revenue and hospital admissions. In November of that year, demand slumped and for the six months that ended in March 2009, patient revenue has lagged budgeted projections by 5.4%, said Timothy Calhoun, Lakelands chief financial officer and vice president of finance.
The system also hasnt been immune to the credit crunch and investment losses that have strained hospital balance sheets elsewhere. Our investment portfolio took it on the chin just like everyones 401(k), Calhoun said.
Calhoun said executives cut $7 million from operating expenses in January without touching wages to adjust to declining patient revenue, but it wasnt enough. In April, Lakeland adopted another $7 million round of cost cuts that targeted labor expenses but avoided layoffs, he said. The systems board also agreed to temporarily lower operating performance targets to avoid more drastic measures, Calhoun said. Were not at budget, but were kind of holding our own, he said. Were just hoping for better times.
With operating cash a growing priority, hospitals are moving more aggressively to collect from insurers and patientseven the uninsured.
In St. Paul, Minn., four-hospital HealthEast Care System has seen fewer patients, but revenue per patient has increased 7% after working with consultants to hone its billing and collection during the past 10 months, said Aaron Bloomquist, HealthEasts managing director of revenue-cycle and payer relations. Improved efforts to enroll patients in public plans and properly bill insurers to prevent rejected claims has boosted revenue by $22 million, Bloomquist said. HealthEast also has begun identifying those uninsured patients most likely to pay medical bills in a bid to bolster collection efficiency, he said.
The University of North Carolina Health Care System in Chapel Hill, N.C., will this month begin asking uninsured patients for deposits ranging from $20 to $100 before clinic visits or diagnostic tests, and also increase to $25 from $10 its copayment for patients who receive charity care.
Allen Daugird, medical director and senior vice president of ambulatory care for the system, which includes 711-bed University of North Carolina Hospitals, called the decision gut-wrenching.
Patients who cannot pay deposits will not be turned away but will receive financial counseling and information about Piedmont Health Services, a network of six community health centers in central North Carolina, Daugird said.
Daugird said the reason for the measures was obvious: the economy. Startup costs for a new cancer hospital and a marked jump in uninsured patients pushed the systems expected operating margin for the coming year to 1% from 4% in prior years, he said. Were trying to figure out ways to survive financially.
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