Recession hits large hospitals harder than smaller facilities

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During the first quarter of fiscal 2009, 54 percent of the U.S. hospitals surveyed reported negative total margins, of which the majority (80 percent) had 500 or more beds compared to the lowest (36 percent) with less than 100 beds, according to a report by the Healthcare Financial Management Association (HFMA).

The report also found that non-operating revenue declined 78 percent in all of the 263 hospitals participating in the survey, with 64 percent reporting a decrease of more than 20 percent in operating income. Again, the larger hospitals with more than 500 beds were most impacted with 79 percent, reporting decreases of more than 20 percent.

Also, 73 percent of those surveyed reported a decrease in days cash on hand: 96 percent of the hospitals with more than 500 beds indicated a decline, with 50 percent of those hospitals indicating that they had had a drop of 20 percent or more. The survey also showed that 43 percent of the responding hospitals had a decline in investment of 25 percent or more.

During the current economic recession, hospitals are "in a brand new territory where we aren't all sure how all the parts are fitting together at this point in time," said Randy Fuller, HFMA's director of thought leadership.

The survey found that 62 percent of hospitals were responding to these economic conditions by putting budget contingency plans in place. The responses could be triggered by changes in: patient revenue or volume (typical triggers were declines of 5 percent, 10 percent or 20 percent in net patient revenue); operating margin targets (such as net operating income falling below 80 percent of budget); sustained declines (such as three consecutive months of undesirable performance); or failure to meet debt covenants (such as related to days cash on hand).

Other strategies are reducing capital spending, changing debt structure, reducing nonlabor costs, containing labor costs, enhancing productivity and efficiency, protecting cash flow, and increasing efforts to expand or protect volume.

"We've seen a big resistance on the part of CFOs to do just simple across-the-board freezes," Fuller said. "Most of the [chief financial officers] that I've talked to have been very thoughtful about making sure they are doing the right things and not ruining the culture of the organization--just really smart cost-cutting processes . . . rather than across-the-board budget freezes."