Thursday, December 25, 2008

Hospitals' financial update


The November 14th blog entry, Financial crisis and hospitals, reviewed the pressures on the nation's hospitals resulting from the financial downturn. In the last two months the rating agency Moody's has been downgrading more hospitals than it has been upgrading. Moody's also rated the financial health of all four major healthcare sectors (for-profits, not-for-profits, health insurers and medical device makers) negatively for the first time ever in its latest report. Hospitals have been having difficulty raising capital, and some have agreed to 'buy-back' provisions to access capital. Many hospitals are freezing hiring (e.g. the Cleveland Clinic) or cutting staff (e.g. Clarian Health in Indianapolis).

In the midst of this turmoil Senator Charles Grassley (R-IA) may be planning to introduce legislation to set a minimum level of charity care (e.g. perhaps as a defined percent of revenues) that non-profit hospitals have to provide. In theory, hospitals that have non-profit status are supposed to provide a community benefit in return for the advantages conferred by the irnon-profit status. In reality all do, though to widely varying degrees. Also, with no clear definitions of how to calculate community benefit (e.g. include bad debt and write-offs or not, include "losses" on Medicaid patients or not, etc.) various hospitals calculate and report widely differing levels of community benefit. Senator Grassley has been concerned for some time that some hospitals actually provide very little charity care and community benefit, at least as compared to the amount of taxes they avoid by virtue of their non-profit status, and he has been holding hearings and pressing the industry to do more... Exasperated, he may be turning to legislation.

Now this blogger is always annoyed by and skeptical of special interest pleading. However, in this case and under the current economic conditions it is to be hoped that Senator Grassley et al. do not overdo it and move forward with a heavy hand. This sector of the economy, while under pressure, overall is still much healthier than many others e.g. automotive, etc. However, large parts of it are very fragile and it wouldn't take much to tip them over the edge!

Bond buy-backs could stress hospitals' liquidity, Moody's says
Moody's downgrades 18 hospital bond ratings in two months
Moody's predicts that non-profit hospitals may sell to for-profits in 2009
Cleveland Clinic freezes hiring, salaries
Hospitals continue struggle against financial collapse
Hospitals seeing record layoffs in 2008
Moody's reports question health of health-care industry
New measure would set minimum charity levels for non-profit hospitals
Grassley Targets Nonprofit Hospitals on Charity Care

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