Hospitals, staffs feeling a financial pinch

Nonprofits face challenge of staffing, but they're getting better at purchasing and contract negotiation.

By Cheryl Jackson, amednews staff. Sept. 24, 2001.

Hospitals continue to reduce the number of employed physicians on staff, and those primary care physicians who remain employed by hospitals are more often having their pay tied to the numbers of new patients they bring in.

That's a result, says a financial analyst, of nonprofit hospitals' financial health worsening or treading water.

"They're changing the contract terms to produce more incentive- and productivity-based compensation," said Bruce Gordon, senior vice president of Moody's Investors Service, one of two debt-rating agencies to issue financial reports on hospitals. "You eat what you kill," he said.

Such moves should not be hard for physicians to swallow, said Stuart Seides, MD, cardiologist and president of the Medical Society of the District of Columbia.

"By and large, the notion of physicians being employed by hospitals in many situations has proven to be an unsuccessful strategy. When you look primarily at clinicians, the employment results at times in isolating those physicians from the realities of the marketplace," Dr. Seides said. "Those physicians get a paycheck, and that paycheck is not reflective of productivity or the reimbursement levels that are out there. And it does not give them any sense of the hassle involved in what you do.

"At the end of the day, physicians of all stripes -- regardless of what their particular situation is -- are having to become responsible for their own economic support."

Financial ill health

In a report to be released this month, Moody's Investors Service said the financial declines nonprofit hospitals experienced in 1998 and 1999 flattened in 2000.

From 1999 to 2000, revenue increased between 7% and 7.5%. The revenue increase from 1999 to 1998 was between 5% and 5.5%.

Hospitals saw expenses increase by about 7% last year, making it the first time in several years that hospital revenue growth has matched expense growth, Gordon said.

"We don't anticipate any dramatic improvement" in financial performance in 2001, he said.

The picture might very well be worse for this year, said Fred Martucci, managing director at Fitch Ratings.

Cash liquidity levels stayed the same, but Martucci said further losses in a down stock market were not yet reflected in the 2000 numbers used for the Aug. 22 report, "2000 Median Ratios for Nonprofit Hospitals and Health Care Systems."

Staffing continues to be a major challenge for hospitals.

"We do not have any hospitals in our portfolio who aren't spending a lot of management time, effort and money on attracting and retaining nurses at all levels," Martucci said.

Nursing strikes in particular have hit hospitals hard, he said. The facilities have to pay more for temporary help, in addition to footing the bill for travel, meals and housing during the strikes, he said. Visiting nurses generally are paid 50% to 150% more than regular staffers.

Both the Fitch and Moody's reports are based on audits from fiscal year 2000. The Moody's results are based on surveys of about 350 of the 535 hospitals it rates. Fitch results are based on a survey of 153 of its 178 hospitals.

To cut costs, hospitals are negotiating better deals with suppliers. "They're getting smarter with regard to purchasing," Martucci said. Meanwhile, they've gotten insurers to pay higher rates, the firms say.