Hospitals Recovering From Recession Woes

The nation’s hospitals are bouncing back from the recession in a big way, even though the rising unemployment rate has reduced their pool of paying customers. According to a new Thomson Reuters study of financial data on more than 400 hospitals, the median profit margin of U.S. hospitals increased from near zero in the third quarter of 2008 to 8.4 percent in the second quarter of 2009.

To put that figure in perspective, the highest annual margin for the nation’s hospitals was 6.9 percent in 2007, with margins ranging from 3 to 6 percent over the previous 20 years, AHA data show.

The recovery is said to be broad-based, with all kinds and sizes of hospitals showing positive numbers. And, while some hospitals, including the Tenet chain, have reported falling admission numbers, admissions were up for U.S. hospitals as a whole in the second quarter, according to the report.

Twenty percent of hospitals are still losing money, but that’s a far cry from the 50 percent of hospitals that were in the red at the end of last year. Of course, many of the facilities reporting losses back then had sustained big losses on the stock market, which has since rebounded.

Also of interest is the fact that hospitals’ median days-cash-on-hand increased from 90 days in the first three months of 2009 to 146 days in the second quarter. Earlier in the year, it was feared that the nationwide credit crunch would hurt ailing hospitals. Now it is possible that hospitals might feel sufficiently confident to resume capital projects that had been put on hold.

One factor in the hospital turnaround, the study says, is lower labor expenses. Despite a fairly constant level of staffing, labor cost 2.25 percent less per discharge than in the prior-year period. According to the report, this was due to a reduction in patient length of stay, which would have also raised the profitability of cases involving Medicare patients.

HCA, the biggest-for-profit hospital chain, reported a third-quarter profit of $196 million, up from $86 million for the prior-year period. Its revenue increased 7.6 percent to $7.53 billion. Tenet Corp., the second biggest hospital operator, lost $3 million in the third quarter and also saw a big jump in its bad debt. But after excluding writedowns and discontinued operations, Tenet had a small gain.