Current Outlook for the Hospital Industry

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Adaptation is Key in 2010 and Going Forward

By Robert James Cimasi; MHA, ASA, AVA, CBA, CMP™


Hospitals today must continually adjust to deal with pressures to contain reimbursement and utilization levels.  The continuing cost containment pressures manifest themselves in many patients being shifted not only to lower acuity treatments but also to other providers.

Reimbursement mechanisms are increasingly designed to control costs and access. Managed care insurance plans continue to be a strong influence as payers for acute care hospital services. Medicare’s HOPPS [hospital outpatient prospective payment system] has reduced many of the financial benefits of shifting more care to outpatient settings.

Personnel Shortages

Personnel shortages have plagued the industry, and with the pending retirement of baby-boomers, relief from these shortages seems remote. This population also heavily influences the consumer side of the industry, since healthcare plans are based heavily upon demographics.  Aging baby-boomers are the fastest-growing segment of the population; the portion of the population over 65 years old is expected to increase from 20 million in 1970 to 69.4 million in 2030. Following closely behind is the increase in other minority populations.  Both groups will influence how healthcare services are dispensed.

Additionally, despite pressure to limit ALOS [average length of stay] and the shift to outpatient and freestanding, off-campus care, there will continue to be demand for acute care hospitals and the demographic trends will support this demand for many years.


Technological advances always play a central role in changing the medical industry.  The issue will be how healthcare providers will adopt new technologies under their current capital constraints.

Currently, health care insurance coverage is a major unfolding issue in the US, and there remains uncertainty about the future level of both public and private insurance coverage.  Now, facing the recent economic instability, employers are looking at restraining healthcare benefits for their employees even more as a way to stay profitable.


The decline in the healthcare workforce coinciding with the increase in labor costs and resource consumption poses an ongoing challenge.  And yet, in the midst of the economic turmoil, hospitals must continue to provide services while remaining aware of the economic threats that may still lie ahead.



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9 Responses

  1. These comments are true, but too generic to be useful. That hospitals or any organization must be ready to adapt is the equivalent of saying the sun will come up tomorrow. It’s a safe bet. Same for saying we don’t yet know what PPACA will do to the systems responsible for providing care.

    The recognition that the change in demographics and therefore healthcare needs is driven significantly by the increasing minority population is an important topic. This means more than a change in payment prospects. It means changes in demands for services. Medicare patients coming into the system are more sophisticated and healthier than past generations. But they also have more chronic health issues, will expect more advanced treatment, will look for alternative solutions, and will be more demanding. The growth in minorities patients will bring cultural influences on demands, options, delivery methods and service options. The language issues with a growing Spanish speaking population will ameliorate over time but will continue to be an acute issue in many agricultural areas and in large metropolitan areas.

    Employee shortages will continue to be a problem for healthcare providers. We need trained staff and OJT is not an option for most staff positions. Economists would point out that the current employment circumstances will drive people to move into places with high demand and long term employment prospects.

    But, there are two barriers to this working in time to fix the current shortfall: a high cost (time and money) of training and a large number of unemployed who are within a few years of retirement. The second group may not want to commit to training that lasts more than a year in return for a job they may not stay in past their early retirement age. Solving this problem is going to make someone wealthy. It could make some large healthcare system very successful.

    Lee Barbieri


  2. Lee,

    By pointing out obvious defects in the above post, your comment offered us all some helpful insights.

    Thank you.
    Hope Hetico RN, MHA
    [Managing Editor]


  3. Not a good outlook for the industry

    Want to know what a hospital charges?

    The development of a fixed priced menu is a must; and not all services for all facilities.



  4. CMS proposes 2011 payment adjustment for hospital outpatient services

    The Centers for Medicare & Medicaid Services has issued a proposed rule imposing a 0.25 percentage point reduction to the fee schedule increase factor for outpatient hospital services.



  5. Hospitals do little to demonstrate they have performed traditional cost volume profit analysis on their services; or add a reasonable profit on top of them to set fee schedules or charges [cost-plus pricing].

    The truth is that in addition to dealing with the emotional and physical trauma of their hospital admitted condition, far too many patients have the added worry of ensuring they aren’t bilked by their medical provider or healthcare plan.

    Dr. David Edward Marcinko; MBA


  6. Is St. Vincent’s the Lehman Brothers of Hospitals?

    Its’ demise was only the beginning. An alarming number of New York’s major medical institutions are teetering on the financial edge.

    Yet, NY hospitals would save $3.4 billion annually by reducing their length-of-stay to national standards.



  7. National Health Spending Growth Held to Record-Breaking Low

    The most recent economic recession slowed the growth of national health spending to 4% in 2009 — the slowest rate since at least 1960. Patients delayed elective care and limited out-of-pocket spending, in part because millions of people lost private health coverage.

    However, the percentage of the nation’s gross domestic product devoted to health care increased to 17.6% in 2009, a full percentage point higher than in 2008, because health spending grew at a faster pace than the economy as a whole. Overall health spending reached $2.49 trillion, according to an annual report on national health spending by the Centers for Medicare & Medicaid Services Office of the Actuary, published the journal Health Affairs.

    Source: Doug Trapp, AMNews [1/17/11]


  8. What happens when hospitals abandon inner cities?

    Hospitals in the U.S. have been abandoning inner cities for years. By 2010, the number of urban hospitals still operating in 52 big cities had fallen to 426, down from 781 in 1970.

    Meanwhile, hundreds of medical centers built with cathedral-like grandeur have opened for business in affluent suburbs.

    This hard-hitting series produced by the Pittsburgh Post-Gazette and Milwaukee Journal Sentinel explains the consequences of this trend for people in neighborhoods where hospitals closed.

    Hope R. Hetico RN MHA


  9. Utilization of the Market Approach in Appraising Outpatient Enterprises

    Healthcare related outpatient enterprises provide services that do not require hospital admission and may be performed outside the premises of a hospital. Similar to the valuation of any business, valuations of outpatient enterprises should include consideration of the three general approaches to valuation (i.e., the income approach, the market approach and the asset/cost approach).

    The specific valuation methods selected under each engagement will be guided by the facts and circumstances surrounding the hypothetical transaction of the subject property interest (e.g., availability of data, nature of the current transactional marketplace).

    This article focuses on utilizing market approach to value outpatient enterprises, while the other articles in this series address the use of an income approach and an asset/cost approach to value outpatient enterprises.

    Robert James Cimasi; MHA, ASA, AVA, CBA, CMP


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