For-profit hospitals expect worse financial outlook in 2009

For-profit hospitals finished 2008 with a better bottom line than seen by their nonprofit brethren, according to Fitch Ratings, which rates hospitals' debt. But for-profits are not expected to be as fortunate in 2009.

Weak patient volumes were offset by strong pricing at for-profit hospitals from October through December 2008, according to Fitch analyst Lauren Coste.

Bad debt expense and uncompensated care levels actually improved over the previous year, she said, and in-patient revenues per admission were up almost 7% because of rate increases from commercial insurers. But patient volume continued to decline. The report on for-profit hospitals was released March 17.

Nonprofit hospitals, on the other hand, continued their downward trend in 2008, said Fitch analyst Jeff Schaub. In the acute care sector, Fitch revised 14 rating outlooks from stable to negative. There were 23 upgraded ratings compared with 22 downgrades, a dramatic change from 2007, when upgrades outpaced downgrades by a 3-1 ratio, Schaub said.

But both hospital sectors are expected to deteriorate in 2009 as the weakening economy takes a greater toll.

Coste said the recession was beginning to catch up to for-profit hospitals beginning in the first quarter of 2009 as the increasing number of unemployed patients choose to delay or forgo medical care once their insurance runs out.

She expects a sharp increase in bad debt expense, pointing out that both Tenet and LifePoint Hospitals Inc. already have reported deteriorated collections on self-pay patients in the fourth quarter of 2008.

Coste said President Barack Obama's budget proposal of $634 billion to create a reserve fund for comprehensive health care reform, and his economic stimulus initiatives under the American Recovery and Reinvestment Act of 2009, help to temper, but not eliminate, Medicaid reimbursement cuts. While both are beneficial to the industry, she said the impact of these efforts will not be immediate.