Hospital Losses Lead to Cuts in Multiple Areas

Last Updated Mar 2, 2009 5:48 PM EST

An independent survey confirms the AHA's earlier estimate that half of U.S. hospitals are losing money. This unprecedented crisis will have a marked impact on suppliers of goods and services to hospitals, another survey predicts. And it has serious implications for the willingness of hospitals to invest in health information technology, either for themselves or for community physicians.

According to a report from Thomson Reuters, U.S. hospitals maintained their operating margins through the third quarter of last year. But steep investment losses pushed 50 percent of them into the red for 2008, resulting in a "near-zero" median margin for the industry. The bottom quartile of hospitals posted average losses of 7 percent or more for the year.

Meanwhile, the recession-fueled increase in the numbers of uninsured and Medicaid patients is making hospitals' financial position worse this year. The rout has been compounded by a drop in the number of surgeries, which have affected 44 percent of the hospitals in the survey.

These adverse events have caused headline-grabbing layoffs at many hospitals. A less publicized result has been cutbacks in supply orders. A poll done by Novation, a large group purchasing organization, shows that 69 percent of hospitals plan to delay or cancel equipment purchases. That could have ripple effects on manufacturers of medical devices and many other kinds of hospital supplies.

Meanwhile, hospitals are also pulling in their horns on health IT investments. A December survey by Healthcare Informatics indicates that 71 percent of hospitals expected their health IT budgets to be smaller in 2009 than they were in 2008. Thirty-six percent of respondents said they were reducing their IT commitments because of the economy. Nineteen percent said they had postponed some IT purchases, and 16 percent had postponed all nonessential IT projects.

This lessens the possibility that hospitals will take advantage of the government health IT incentives included in the recently passed economic stimulus legislation. Hospitals are eligible for up to $11 million each in incentives from Medicare and Medicaid, but that money won't be available to them until 2011.

Relatively few hospitals have responded to the 2006 relaxation of the Stark self-referral law, which allows them to donate up to 85 percent of the cost of EMR software to community doctors. Judging by the Healthcare Informatics poll results, the economic slowdown is likely to discourage other hospitals from moving forward with Stark initiatives.

  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.