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Hospitals and the Recession

By June 9, 2014Commentary

The recession had effects on the health care system that are often hard to disentangle from reform and other large health care initiatives and trends.  A study in Health Affairs analyzed the financial performance of status of hospitals before, during and after the recession.   (HA Article)   Hospitals are a critical component of the care system and particularly in low-income areas, some were struggling even before the recession.  Overall hospital expenditures grew very slowly between 2007 and 2010 and total margins fell from an industry average of 6% in 2007 to 1.8% in 2008.  In 2008 about a fourth of hospitals had negative margins of 1.6% or worse and one-fourth had margins over 7.6%.  Using Medicare cost data and other sources, the authors divided hospitals over the 2005 to 2011 period into groups according to financial performance.  About 3000 hospitals were included in the study.  Of these, 25% were classified as financially weak, 13.4% as mixed and 62% as strong.   About 11% were safety-net hospitals and 28% of these were financially weak.  Few of even the weak hospitals experienced closure or merger or other significant event during the study period.  While all groups of hospitals experience margin decline, overall they did not shift categories, strong financial performers stayed strong and weak ones stayed weak.  For the strong hospitals, operating margin recovered by 2009 as did total margins.  For weak performers, total margins were above pre-recession levels by 2010 but operating margins were still below those levels, indicating that they made this up in greater non-patient revenues.  This trend should be of considerable concern.  Many of these safety-net institutions are not members of larger systems, which have the capability to share resources, but some are government-funded.  For-profit hospitals did not see much of dip in operating margins, although their total margins declined initially.   Since poor financial performance is correlated with poor patient outcomes, improving the financial situation of the weak hospitals might have an impact on quality of care.

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