Economy Leaves Half of U.S. Hospitals in Poor Financial Health


Nevermind sick patients, hospitals are the ones truly ailing.

Devastated by a harsh economy and a decline in non-operating revenues, the median profit margin of U.S. hospitals has fallen
to zero percent, according to a Thomson Reuters analysis of hospital

All types of hospitals --
small, medium and large community hospitals, teaching hospitals and
major teaching hospitals -- are under severe financial strain.

The study examined the balance sheets of more than
400 hospitals nationwide. It evaluated trends in revenue and profit,
employment levels, closures, inpatient volume, reimbursement rates, and
frequency of elective medical treatments to gauge the fiscal health of
the nation's hospitals.

Following are the key findings of the analysis:Total Margin at Zero: The median
total margin among the 439 hospitals in the study was zero percent in
the third quarter of 2008 - an historically unprecedented low.

-- In the Red: Approximately 50 percent of hospitals were unprofitable in the third quarter of 2008.

-- Growth in Reimbursement Rates Shrinking:
Payments hospitals received from Medicare, Medicaid and private
insurers were growing at a declining rate through the end of 2008.

-- Credit Crunch:
Hospitals' median cash-on-hand reached an historic low in the third
quarter of 2008, demonstrating the impact of the credit crisis on
liquidity. There was great variability in the median value of 110
days-cash-on-hand seen at that time - from 57 days for the lowest
quartile of hospitals to 203 days for hospitals in the highest quartile.

-- Stable Operations:
Potential recessionary impacts that are not yet seen in the data
include bed closures, mass layoffs, declining patient volumes, or a
decline in elective procedures.

"Hospitals are facing unprecedented economic stress and many of the
indicators we're seeing suggest that things will get worse before they
get better," said Gary Pickens, chief research
officer for the Healthcare business of Thomson Reuters and lead author
of the study. "While operating margins are generally holding steady,
non-operating margins have all but disappeared from hospital balance
sheets. That makes it difficult for hospitals to secure financing for
new equipment and to fund expansion efforts.

"The key metrics we're watching most closely right now are operating
margins and frequency of elective procedures," Pickens added. "If they
start to slip, it may usher in a host of contagion effects."

A preliminary draft of the study is available here. The Healthcare business of Thomson Reuters will update this report regularly as an ongoing benchmark of hospital financial performance.



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