Hospital finances are in stable condition

But one report says 2004 may be a year in which they could be classified as serious.

By Tyler Chin, AMNews staff. Feb. 10, 2003.

The financial outlook for hospitals is expected to remain stable this year but could start deteriorating in 2004, according to Fitch Ratings.

The New York-based credit rating agency said the same factors that helped hospitals post a modest financial performance in 2002 -- expanding into more profitable services such as cardiology, orthopedics, oncology and neurosurgery; shedding physician practices; negotiating better managed care contracts and improving collections -- will help them post flat results in 2003 compared with the previous year's results.

But building pressures could contribute to a financial reversal for hospitals as early as 2004, said Craig Kornett, a senior director at Fitch.

"A 'perfect storm' is brewing, which may hit in 2004, whereby revenue will be reduced, uncompensated care will be greater and expenses will continue to soar," Kornett said.

Increased competition from physician entrepreneurs building their own surgery centers "has threatened hospitals' most profitable lines, which may impair the hospitals' ability to subsidize unprofitable service lines and programs," he said.

Higher labor costs resulting from a shortage of nurses, pharmacists, coders and billers and reduced health care spending by state and federal governments also will squeeze hospital operating margins. While increased patient volume helped hospitals post better numbers in 2002, it also is forcing hospitals to upgrade and expand their facilities. Many hospitals face a capital crunch that is likely to be exacerbated when record-low interest rates begin rising. When that happens, some hospitals may find their credit rating adversely impacted and their access to capital limited, said John Wells, a director in Fitch's health care group.