Report Details Hospitals’ Financial Health

A new report out on the financial health of the nation’s leading hospitals and the prognosis is not good.

According to the report released today by Thomson Reuters, half of all U.S. hospitals are unprofitable. A lot of the downturn is the result of declines in non-operating revenues. Would that be investment income?

The study applied two dozen key financial indicators to the balance sheets of over 400 hospitals nationwide, including small, medium and large community hospitals, and major teaching hospitals.

The median profit margin among 439 hospitals in the study was 0% in the third quarter of 2008 and approximately 50% of hospitals were unprofitable during that period. Adding to the decline in investment income, growth in reimbursements from Medicare, Medicaid and private insurers is also declining.

Hospitals were also not immune to the credit crisis, as evidenced by historically low cash-on-hand levels at the end of 2008.

The Bottom Line

The study reported that worsening financial health for the nations hospitals could result in decreased bed capacity, mass layoffs, declining patient volumes, or a decline in elective procedures. ary Pickens, chief research officer for the Healthcare business of Thomson Reuters and lead author of the study stated:

“Hospitals are facing unprecedented economic stress and many of the indicators we’re seeing suggest that things will get worse before they get better. 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. If they start to slip, it may usher in a host of contagion effects.”

A preliminary draft of the study is available from Thompson Reuters (FYI it’s in pdf format).

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