Hospital Finances: How Things are Stacking Up

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Things are not great right now for hospital balance sheets. In fact, there’s so much going on that our usual Big Story isn’t a single headline but an aggregation of events and stories that, taken together, point to a tough couple of years for hospitals. Especially for not-for-profit health systems. But there are signs of opportunities, too. Here’s what’s happening, told through eight articles:

Inflation to Erode Not-for-Profit Hospital Margins Absent Major Changes

  • The takeaway: Last month, Fitch predicted margins would continue to erode.
  • The quote: “Improvement in operating margins from reduced levels will require hospitals to make transformational changes to the business model (long term), while managing cost pressures through a combination of rate hikes (short term) and relentless, on-going cost-cutting and productivity improvements (medium term).”

  • The takeaway: This month, the same ratings agency said shifts towards value-based models are likely to end up on the back burner “until expenses stabilize and become more predictable.”

  • The takeaway: S&P Global Ratings warned that “nonprofit healthcare faces a difficult operating environment amid mounting pressures from both inflation and more expensive labor.” How long? Fitch says, “We are likely two years before some level of “normal” returns to the sector.”

  • The takeaway: Payers are checking the numbers, too. They’re concerned layoffs will reduce enrollment numbers and that layoff fears could spur employees to use benefits while they still have them. They’re also worried inflation’s effects on providers will push payers to make concessions.
  • The quote: “Moody’s noted the effect of any economic slowdown or continued inflation is likely to have a modest impact on insurers. That’s because insurers are less exposed to supply chain issues, higher interest rates and labor shortages, unlike hospitals… Another headwind for insurers could be persistent inflation that hangs around for years, which would likely result in providers demanding higher reimbursement…”

  • The takeaway: Even where insurers are questioning the near-term outlook, they’re coming off a pretty good run. Payers have been reporting eyewatering profits, with Q2 filling their coffers after some bumpy, but overall upward-trending post-pandemic results.
  • The quote: “UnitedHealth Group continues to be a financial juggernaut through two quarters, leading the charge in revenues and profit for the first half of 2022. The healthcare giant brought in $160.5 billion in revenue across Q1 and Q2 this year, as well as $10.1 billion in profit.”

Clearly, more bumps ahead for providers. Yet, glimmers of opportunity are surfacing amid the problems. Being taken apart and transformed is hard. Brutal even. But it’s also a process that can lead to positive change.

  • The quote: “Some of the biggest hospital chains are seeing business rebound to pre-pandemic levels.” Still, “the industry as a whole is pressing for more federal relief before year’s end, citing inflation, labor and supply cost pressures.”

  • The takeaway: As pressure intensifies, so does the need for transformation, innovation and streamlining. The challenges smaller hospitals are facing, for instance, could turn into a sandbox that benefits those hospitals as well as the industry as a whole.
  • The quote: “Rural health systems and hospitals are poised to be the next hubs of tech innovation, leveraging digital health and virtual care to serve patients across thousands of square miles and over state lines.”

  • The takeaway: Too often though, the options for distressed hospitals are to sell for nothing or close altogether. Selling for $100 may be painful, but hopefully that sacrifice keeps services online or brings them back.
  • The quote: “When you’re on the ropes or even got your head under water, it’s really difficult to negotiate with any terms of strength. And so you, oftentimes, are choosing whoever is willing to choose you.’

Most likely all of this confirms what you already know or certainly suspect: While the last few years have been an unprecedented challenge for traditional, acute-care providers, the storm isn’t over. More pressure and more change – and the need for powerful storytelling – is coming fast over the horizon.

This piece was originally published over the weekend in our Sunday Quick Think newsletter. Fill out the form to get that in your inbox every week.

Jarrard Inc.
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