A Hospital Industry Outlook for 2013

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One Expert’s Opinion

By Ann Miller RN MHA

[Managing Editor]

The ME-P and nation recently celebrated National Hospital Week for 2013. And so, what better time than now to ask health economist and financial expert Robert James Cimasi MHA, ASA, AVA, CMP for his take on the industry outlook. www.HealthCapital.com

cimasiHistory Background and Overview

The U.S. Healthcare Delivery System is facing what is perhaps its greatest challenge in the expected demand for increased health services from the aging of the “baby-boom” generation, the fastest-growing segment of the population.

The enactment of healthcare reform in March 2010, requiring increased insurance coverage requirements for individuals and employers, will also increase patient demand for hospital inpatient and outpatient services in the coming years.

Hospital Industry 

The hospital industry continues to face many challenges in the changing healthcare environment, including workforce shortages, rising healthcare costs to provide care, and difficulty acquiring needed capital. With consistent financial stresses, hospitals in some areas appear to be struggling.

However, general acute-care hospitals recorded record high profits of $35.2 billion in 2006, an increase of over 20% from 2005.  Total net revenues for general acute-care hospitals were $587.1 billion, resulting in an average profit margin of 6% (the highest since 1997, when the average profit margin was 6.7%).

While the demand for healthcare continues to rise, the site of service also continues to evolve as more procedures are performed on an outpatient basis and by freestanding facilities rather than by inpatient acute care hospitals.  As evidence of this trend, the number of freestanding ambulatory care surgery centers increased from 2,864 in 2000 to 5,197 in 2006.

U.S. healthcare costs are again increasing after their rate of growth slowed in the mid-1990s.

In 2009, total national health expenditures (NHE) in the U.S. grew to $2.5 trillion, a 5.7% increase from 2008.  Meanwhile, the nation’s gross domestic product (GDP) shrank by 1.1%, and as a result, NHE increased from 16.2% to 17.3% of the GDP: the largest one-year increase-in history. Additionally, healthcare spending has been projected to grow to 19.6% by 2016. The potential impact of the 2010 healthcare reform legislation to reduce rising healthcare expenditures is yet uncertain.

According to a 2002 study conducted by the Blue Cross and Blue Shield Association (BCBSA), inpatient costs are responsive to hospital market organization.  Each 1% increase in for-profit hospital market share is associated with a 2% increase in inpatient expenditure per person.  Conversely, each 1% increase in network hospital market share corresponds to a 1% decrease in inpatient expenditures.

Risk Sharing

As healthcare costs again continue to rise faster than inflation in the overall economy in 2013, driven by advances in technology and treatment (as well as the growing baby-boomer population), pressures to reduce costs, such as those included in the ACA will result in a changed paradigm for healthcare delivery.

Reimbursement mechanisms are increasingly designed to control costs and access, and hospitals must continually adjust to deal with increasing pressure to contain reimbursement and utilization levels; ie., share financial risks.

The Marketplace

The healthcare marketplace continues to experience dramatic change as the business of healthcare becomes increasingly competitive, particularly in the outpatient ancillary services arena.  Providers and payors continue to seek to control costs and markets. Legal and regulatory issues also affect change as providers adapt to new opportunities and restrictions.

In particular, there are a wide variety of cost, operational, and regulatory pressures impacting the specialty and surgical hospital industry.

Of course, these pressures are offset by the stable and increasing demand for hospital services, particularly for those hospitals already in operation.



Bob feels that hospitals that are operationally efficient will continue to be successful within this environment; others will not. How about you?

More: Financial Management Strategies for Hospitals and Healthcare Organizations : Tools, Techniques, Checklists and Case Studies

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