Hospitals continue to struggle financially

The downward trend, often tied to inequities in reimbursement, is likely to affect doctors who rely on facility upgrades and improvements.

By Mike Norbut, amednews staff. Nov. 17, 2003.

More hospitals are slipping from the ranks of the financially stable, further dividing the haves from the have-nots in health care, according to a new study by the Healthcare Financial Management Assn.

The report, the first of six to be released over the next year by the association, also reveals hospitals are finding it more difficult in general to get financing for capital projects and service expansion.

Financing fleeting
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The declining health of some hospitals can have a profound affect on the physicians who admit patients to them, especially if there are no other facilities nearby, said Richard L. Clarke, president and CEO of HFMA, which is based in Westchester, Ill.

A healthy, thriving hospital not only helps patients and the community by providing local care and a job resource, but it also can help physicians by providing an attractive environment to practice, he said.

"It very much is a partnership, and it's in the physician's best interest that the hospital performs well," Clarke said. "It may be a very valuable organization to the community. It's an asset that will wither on the vine if, in fact, folks bail out."

But hospitals may need more than continued support from physicians to reverse the current trend. The portion of hospitals classified as having broad access to capital declined from 42% in 1997 to 36% in 2002, while those with limited capital access rose from 11% to 19%, according to the report. Operating margins have decreased across the board as well, though that decline has been greater among hospitals with limited financing options.

The types of financing hospitals seek has changed as well. Fewer facilities have pursued bank loans, choosing instead to sell tax-exempt bonds and lease equipment, according to the report. Hospitals also have started to rely more on philanthropy and less on their own reserves, the report said.

The ability to access capital is largely dependent on a hospital's financial stability and credit rating, but that doesn't necessarily correspond with its size, Clarke said. Small rural facilities and large teaching institutions each are represented among the limited-access hospitals, he said.

What are common among poorly performing facilities are the occupancy rate, length of stay, salary costs and the high percentage of patients covered under Medicaid, Clarke said.

"For-profit hospitals were more likely to be in the broad-access [category]," he said. "But being part of a system doesn't mean you'll have broad access."

A lack of for-profit facilities is one reason why New York was reported to have the most hospitals with limited access to financing. This, combined with state regulations and a high percentage of Medicare and Medicaid patients, makes it more difficult for hospitals to invest in technology and other resources, said Jeffrey Ribner, MD, a neurologist from Binghamton, N.Y., and president of the Medical Society of the State of New York.

"Our most obvious problem is [the lack of] adequate government funding," Dr. Ribner said. "If I'm a bank, I look at the fact we're forced to offer care at less than reasonable rates."

Inequities in Medicare and Medicaid reimbursement are issues physicians and hospitals each bring up when highlighting the problems with today's health care system.

Just because they are faced with declining reimbursements, however, does not mean hospitals simply can tighten their belts in other areas, said Don May, vice president of policy for the American Hospital Assn. Because facilities often have no choice but to invest in technology and modernize buildings, their lower credit rating might mean they don't get the best deals for their financing, May said.

"One thing we hear from lenders and bond rating companies is they're looking for adequate, reliable, consistent payments," May said.

The report discusses financing alternatives for hospitals to consider instead of traditional loans and bonds.

Some hospitals have sold their outlying medical buildings and other real estate as a way to raise capital, while others have partnered with physicians on joint ventures, such as ambulatory surgery centers or specialty hospitals, according to the report.

ADDITIONAL INFORMATION:

Financing fleeting

It is increasingly difficult for hospitals to access financing for capital projects and service expansions. The percentage of hospitals with broad access to capital decreased between 1997 and 2002, while the percentage with limited access increased.

Access to capital: