Nonprofit medical systems see their financial health worsening

The recession is continuing to pound hospital and health care finances, according to a pair of reports issued in July.

"This is not a good year for health care, just as it's not a good year for the economy," said Jon Burroughs, MD, a senior consultant with the Greeley Co. in Marblehead, Mass.

A Standard & Poor's report issued July 7 found sicker conditions in 2008 at nonprofit health institutions. The credit ratings for 60 of them were downgraded, but only 15 were upgraded. In 2007, analysts downgraded 35 and upgraded 18. The credit ratings are a measure of present and expected future financial health, and a downgrade means higher interest rates for borrowing.

Also, S&P said median operating margins declined from 2.5% in 2007 to 1.8% in 2008. Experts suspect that the financial health of this sector is declining significantly at this time because of losses on investments. Previously, investment gains made up for declines in operating income.

"We have really seen it in a big way this year because of the recession and because of the investment market," said Cynthia Keller, one of the report's authors and an associate director in public finance and health care at S&P.

And stand-alone institutions tended to be harder hit than multisite systems.

"They're just a little bit more vulnerable. They don't have the bargaining power with payers or suppliers," said Jennifer Soule, also an author on this report, and a director in public finance and health care at S&P.

The authors said, however, that the full impact of the recession, which hit hard in the fourth quarter of 2008, is not included in these figures, because most institutions close the fiscal year in September. Subsequent analyses are expected to be worse, and experts don't expect to see any improvements until at least 2010, although the potential impact of health system reform is being watched closely. Another 23 institutions already have been downgraded this year, with only four going up.

"Improvements in revenue are going to be highly dependent on what happens with federal health reform," Soule said.

These financial problems also are translating to layoffs, although few clinical staff are affected, primarily because physicians, nurses and other practitioners remain in short supply in most regions, experts said.

"We are fortunate that we are so essential to generate revenue. We're mostly protected," Dr. Burroughs said.

According to the Bureau of Labor Statistics, 16 hospitals engaged in mass layoffs involving at least 50 people in May. That's more than double the seven that had layoffs in May 2008.

The number of jobs created by the health care sector also went down. The employment situation summary published by the bureau July 2 reported that the industry as a whole added 21,000 jobs a month since the beginning of the year. This represented a decline from the 30,000 added monthly in 2008.

When the preliminary data are broken down further, the number of jobs in ambulatory health care services increased by 12,400 in June. Another 4,700 were added in physician offices, and 3,700 were added by hospitals.