Half of hospitals ended 2008 with an unprofitable third quarter

A study finds U.S. hospitals' profits were plunging even before the worst of the stock market dip.

By Karen Caffarini — Posted March 18, 2009

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The median operating margin of U.S. hospitals resembles Bluto Blutarsky's grade-point average in "Animal House" -- zero-point-zero.

A Thomson Reuters analysis released March 2 found about 50% of hospitals were in the red in the third quarter of 2008. All types of hospitals are continuing to feel the financial strain. The study tracked two dozen key financial indicators, including reimbursement rates, inpatient volume, and revenue and profit, at 439 U.S. hospitals.

"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 Gary Pickens, PhD, lead author of the study and senior vice president and chief research officer for the health care division of Thomson Reuters. Thomson Reuters provides financial benchmarks and analysis for various markets.

"While operating margins are holding steady, nonoperating margins like investments have all but disappeared from hospital balance sheets," Pickens said.

And that was as of the end of the 2008 third quarter -- a time when the stock market was dropping, but not to the lows it has since reached.

Caroline Steinberg, vice president of trends analysis for the American Hospital Assn., did not rule out the possibility that the median profit margin could drop below zero. She said several of the recessionary effects on hospitals, such as mass layoffs, declines in patient volumes and declines in elective procedures, had not yet been seen in the Thomson data.

Over the past year hospitals have been streamlining to offset revenue decline -- putting off new construction plans, cutting operational costs and, in many cases, laying off employees. For example, the University of Chicago Medical Center announced on Feb. 8 that 450 jobs would be eliminated and hundreds more cut through attrition, and Swedish Medical Center in Seattle said on Feb. 4 that 200 jobs would be eliminated.

"Labor accounts for more than 50% of hospitals' costs. It's something that will continue to be looked at," said Richard Gundling, vice president of Healthcare Financial Management Assn., a membership organization for health care financial managers and executives.

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