Thomson Reuters: About 50% of hospitals in the red for Q3, profit margin falling

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The median profit margin of U.S. hospitals has fallen to zero percenta and financial strains are apparent across all hospital types, driven largely by a decline in non-operating revenues, according to a Thomson Reuters analysis of hospital finances.

The report tracked two dozen financial indicators, using proprietary and public data to dissect the balance sheets of more than 400 U.S. hospitals, including small, medium and large community hospitals, teaching hospitals and major academic hospitals. It evaluated trends in revenue and profit, employment levels, closures, inpatient volume, reimbursement rates and frequency of elective medical treatments to gauge the fiscal health of the  institutions.

Some of the findings in the analysis are:

  • Total Margin at Zero: The median total margin among the 439 hospitals in the study was zero percent in the third quarter of 2008--an historically unprecedented low.
  • In the Red: Approximately 50 percent of hospitals were unprofitable in the third quarter of 2008.
  • Reimbursement Rates Shrinking: Payments hospitals received from Medicare, Medicaid and private insurers were declining through the end of 2008.
  • Credit Crunch: Hospitals' median cash-on-hand reached an historic low in the third quarter of 2008, demonstrating the impact of the credit crisis on liquidity. There was great variability in the median value of 110 days-cash-on-hand seen at that time--from 57 days for the lowest quartile of hospitals to 203 days for  hospitals in the highest quartile.
  • Stable Operations: Potential recessionary impacts that are not yet seen in the data include bed closures, mass layoffs, declining patient volumes or a decline in elective procedures.

"Hospitals are facing unprecedented economic stress and many of the indicators we're seeing suggest that things will get worse before they get better," said the study's lead author Gary Pickens, chief research officer for the healthcare business of Thomson Reuters. "While operating margins are generally holding steady, non-operating margins have all but disappeared from hospital balance sheets. That makes it difficult for hospitals to secure financing for new equipment and to fund expansion efforts."

"The key metrics we're watching most closely right now are operating margins and frequency of elective procedures," Pickens added.  "If they start to slip, it may usher in a host of contagion effects."

The American Hospital Association (AHA) said that Thomson Reuters' findings are consistent with data compiled by the association, showing the negative impact the recession is having on hospitals.