Hospitals facing a stable financial outlook

The reasons include increasing reimbursements and jettisoning money-losing physician practices.

By Cheryl Jackson, AMNews staff. Feb. 11, 2002.

Hospitals, having spent a decade fretting over miserly reimbursements and cuts, look poised for a financial comeback, analysts say.

After shedding themselves of money-losing physician groups and standing up to insurers for better payments, the facilities are feeling better, according to recent reports by Fitch Ratings and Standard & Poor's.

But major challenges over the past few years -- including those of staffing, and drug and liability insurance costs -- remain. And they're dealing with higher bad debt expenses and need to improve collections operations, as the average number of days in accounts receivables increases, analysts say. Also, a poor economic climate has lessened investment returns that had been subsidizing operating losses.

Yet the hospital sector has stabilized and will improve modestly this year, according to Fitch, which expects the number of hospital downgrades this year to be less than 2001's 21 and 2000's 19.

Analysts at Standard & Poor's also expect more upgrades and positive outlooks for 2002 than in the last three years. Last year saw nonprofit credit downgrades outnumber upgrades 6-to-1; for-profits saw four upgrades and no downgrades.

Hospitals have stemmed the tide of losses from physician practices by shifting to productivity-based contracts. Having bought physician practices in response to growing physician practice management firms, to protect volumes, hospitals found the ownership troublesome, primarily because the contracts did not offer doctors incentives to treat a large number of patients. [...]