We thought we were pretty smart way back in January 2009. We ran an image of a tiny dollar bill on the cover of the magazine with the headline, "Brace Yourself." The article inside the magazine warned that health care was not immune from the Great Recession." Hospitals watched as their access to capital steadily decreased over the year, punctuated in September by dramatic declines in the stock market and the recent determination by the National Bureau of Economic Research that the United States has been in a recession since December 2007," my colleague Haydn Bush wrote. He went on to report that Fitch Ratings gave the not-for-profit hospital sector a negative outlook for the first time in five years as it predicted more downgrades than upgrades.
Well, as Yogi Berra would say, it's déjà vu all over again. Yesterday, Moody's Investors Services issued a report cautioning that "reimbursement pressures coming from all major payers — Medicare, Medicaid and commercial health insurers — falling revenue growth has become the most important and immediate challenge confronting US not-for-profit health care providers." Moody's Lisa Goldstein predicts that ratings downgrades will increase in the short term unless "expense reductions and productivity gains compensate for stagnant and weak revenue growth." Sound familiar?
And while not as ominous, S&P issued a statement saying that it views the declining reimbursement from government payers as a "growing risk for hospitals and health systems. … we believe that those with already-thin operating margins, inflexible cost structures, and high dependence on governmental payors are more likely to experience credit stress over the next few years."
Are you sensing a theme here? I'm not just referring to the handwringing around government reimbursements. To be sure, that is an enormous challenge, but one that will ultimately be decided by lawmakers in Congress and statehouses, not hospitals. No, it's that continued refrain of "expense reduction" or "inflexible cost structures." In other words, cost containment. It's a message that came through loud and clear during last May's 12th Annual Non-Profit Health Care Investor Conference, which is jointly sponsored by the AHA, HFMA and Citigroup. Officials from 29 of the nation's top performing not-for-profit hospitals told the investment community that they were fully aware of the need to bring costs under control. Many talked about having to trim 20 percent from their budgets just to maintain current operations in the coming years. They are focused on the supply chain, staffing, clinical efficiency, IT, energy, construction and every other line item in the budget. As Katherine Arbuckle, executive vice president and CFO of Bon Secours Health System told me at the conference, hospitals are not just going to see lower payments, but also great changes in utilization. They have to invest in building out an infrastructure that supports accountable care and the care continuum. Value, she said, is the new mantra.
Concerns over a double-dip recession, the roller-coaster stock market, and the congressional debt commission are certainly enough to keep every hospital CEO up day and night. But, as we reported back in 2009 and in the years since, there are steps hospitals can take to become more efficient and reduce expenses. Here at H&HN we are fully aware of the tremendous challenge this presents to hospitals, so starting in October we are launching a yearlong, multi-media editorial campaign on the issue of cost containment. This isn't a "woe is me" series. Rather, we'll be looking at best practices and strategies hospitals are deploying to contain costs and shore up their operations for the uncertain future. We welcome your feedback as the series unfolds and would love to hear some of the solutions being implemented at your hospitals. Email me at email@example.com.