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HFMA, Healthcare Financial Pulse: The Financial Health of U.S. Hospitals and Health Systems, available at www.hfma.org/pulse.

'Weakened but still beating' is probably an accurate summary of findings in "Healthcare Financial Pulse," an ongoing initiative of the Healthcare Financial Management Association (HFMA). The program was set up to track the emerging trends affecting the industry's bottom line.

Richard Gundling, HFMA vice president, said the data, which was released in January 2009, is based on a survey of 300 facilities conducted in late 2008. The initiative, sponsored by McKesson and RelayHealth, tracked the responses of healthcare financial executives who were representative of the overall industry with a diverse mix of hospitals and health systems including investor-owned, nonprofit, government, urban and rural facilities with varying bed counts.

"A lot of hospitals have been seeing their volumes weakening," said Gundling. "It's interesting how volumes are affected by the economy. As we see the unemployment rate go up, people don't want to take off weeks for elective surgery."

While those who are still employed are nervous about taking off too much time, those who have lost their jobs have often lost access to coverage with the same end result … put off anything that isn't medically urgent. Not only are volumes declining, but the amount of bad debt and charity care is increasing.

Gundling said the economic forces that have plagued individual's 401K statements are also impacting health systems. "Hospitals had relied so much on investment returns. As that plummeted, the bottom lines plummeted, as well." Charitable donations to hospitals have also been significantly reduced as philanthropists wrestle with their own weakened financial state.

Further complicating the issue is newly constrained access to capital.

"We've come out of an era of cheap credit," Gundling said, adding that many hospitals have based their working financial plans off a time when interest rates were low and capital was easily accessible. He cautioned that these facilities will need to go back and retool plans to mirror today's economic realities. Gundling noted both the "have" and "have not" facilities are struggling to access capital today.

Likening healthcare to the housing industry, Gundling said the economy has really paused for everyone no matter what the facilty's historical financial strength. "It's like people trying to buy a house. They're having to jump through hoops right now … even those with good jobs, good credit. Everyone is so gun shy. Where else do you generate capital? Yourself."

Ultimately, Gundling said, the message HFMA is hearing from chief financial officers is that if they can't get credit and people aren't donating money, then hospitals and health systems must generate money through a better bottom line. That means cutting costs... potentially through layoffs and/or dropping the least profitable service lines. With major capital expenditures being put on hold, the concern exists that the quality of care will ultimately be impacted.

"You lessen your competitive ability if you are falling further and further behind in your technology," Gundling pointed out. He added that many in the industry argue that healthcare information technology is key in maximizing efficiency and positively impacting patient safety and quality.

To move in that direction, Gundling said the American Recovery and Reinvestment Act of 2009 included the HITECH Act– Health Information Technology for Economic and Clinical Health – which might help by providing $19 billion for the implementation of electronic health records.

"I think with the economic stimulus package, the government thought they could get a 'two-fer' … help modernize hospitals and at the same time stimulate the economy," he noted.

While most hospitals will be battered by the current financial crisis, Gundling pointed out that hospitals don't close all that easily. "We'll see several iterations before that happens," he predicted, adding the industry may see an uptick in acquisitions and mergers. Still, he continued, the chasm between the "have" and "have not" hospitals has been widening for quite awhile, and Gundling said he expects some weaker hospitals won't make it through this economic storm.

Despite the undeniably gloomy picture, the report did outline key actions administrators can take to try to ride out the downturn. Debt management will become increasingly important to survive in the current climate. The authors also urged financial managers to create a shared sense of urgency, understanding and leadership to get everyone on the same page and to communicate that message clearly and consistently to all audiences … both internal and external. Communication should also extend to state and federal legislators in the face of pending healthcare reform.

Administrators were also exhorted to become low-cost providers by taking a strategic approach to cost management and improving efficiency and quality... including investing in technologies or processes that will improve the staff's ability to work smarter. Finally, it is imperative to preserve cash by closely managing financial budgeting and spending processes and taking a "zero-based" look at all service lines.

Gundling said it was key to revisit current plans and reassess financial risks and capital initiatives rather than blindly proceed with a plan conceived during a very different economic climate. He also said it's important to seek out other forms of capital when traditional bond funding isn't available. Lease options and venture capital opportunities should be explored.
While it's easy to panic right now, healthcare is a notoriously resilient industry. Those who take a proactive stance have the best opportunity to emerge from this financial downturn stronger and more efficient than ever.

Tags:

economic downturn, Healthcare Financial Management Association, HFMA, hospital finances, Richard Gundling

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