Oh Really … No so Fast!
Submitted by J. Wayne Firebaugh, Jr; CPA, CFP®, CMP™
Dr. Malcolm T. MacEachern, Director of Hospital Activities for the American College of Surgeons, presciently observed that:
… Our hospitals are now involved in the worst financial crisis they have ever experienced. It is absolutely necessary to all of us to put our heads together and try to find some solution. If we are to have effective results we must have concerted and coordinated immediate action. … Repeated adjustments of expenses to income have been made. Never before has there been such a careful analysis of hospital accounting and study of financial policies. It is entirely possible for us to inaugurate improvements in business methods which will lead to greater ways and means of financing hospitals in the future … It is true that all hospitals have already trimmed their sales to better meet the financial conditions of their respective communities. This has been chiefly through economies of administration. There has been more or less universal reduction in personnel and salaries; many economies have been affected. Everything possible has been done to reduce expenditures but this has not been sufficient to bring about immediate relief in the majority of instances. The continuance of the present economic conditions will force hospitals generally to further action. The time has come when this problem must be given even greater thought, both from its community and from its national aspect…
Source: Steinberg, C. Overview of the US Healthcare System; American Hospital Association 2003.
Many hospital CXOs, healthcare administrators and physician executives would agree that Dr. MacEachern accurately describes today’s healthcare funding environment. However, they might be startled to learn that Dr. MacEachern made these observations in 1932! There is the old truism that there is nothing new under the sun.
American Hospital Association Statistics
Healthcare statistics suggested that the financial crisis is much the same today as it was for hospitals during the Great Depression. The American Hospital Association’s (AHA) reported gloomy statistics for hospitals include:
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In 2001, 29% of hospitals had negative total margins.
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Approximately $101.3 billion of uncompensated care was provided between 1997 and 2001 with an average annual increase of 16% during that time period.
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Emergency departments in 62% of all hospitals report operating at, or over, capacity.
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Technology costs are soaring as traditional technologies such as X-Ray machines, for $175,000, are being replaced by contemporary technologies such as CAT Scanners at $1 million that are in turn being replaced by CT Functional Imaging with PET Scans costing $2.3 million. Even such a “simple” instrument as a scalpel that costs $20, is being replaced by equipment for electrocautery costing $12,000, that is then being replaced by harmonic scalpels costing $30,000.
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Between 2000 and 2002, 33% of hospitals reported increases in liability premiums of more than 100%.
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The average age of hospital plants has increased 21% from 7.9 years to 9.6 years in just one decade.
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In the four years ending 2002, hospital bond downgrades have outpaced hospital bond upgrades by almost 5 to 1.
Editor’s Assessment
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Filed under: Career Development, Health Economics, Health Insurance, Healthcare Finance, Managed Care, Marketing & Advertising, Media Mentions and PR, Recommended Books | Tagged: AHA, American College Surgeons, American Hospital Association, CAT, CT, david marcinko, financial crisis, hope hetico, hospitals, medical crisis management, MRI, PET, Wayne Firebaugh | 4 Comments »
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