Margaret Atkinson Martin
Director of Client Services
225.376.3640
margaret.martin@bswllp.com

Traci S. Thompson
traci.thompson@bswllp.com

Industry Alerts

The recent economic downturn and market volatility felt by Wall Street is clearly impacting Main Street. And, nowhere is this adage more evident than in hospitals and health systems across the nation. But, this sector is no stranger to tough financial times. The recent market meltdown is only a continuation of the challenges hospitals and health systems have been facing. The nation’s continuous financial woes have hospitals coping with a myriad of issues from declining reimbursements (due in part to recent reimbursement pressures from public payers) to rising interest rates resulting from the mortgage crisis (due mainly to significant increases in interest rates for several kinds of variable-rate debt). Additionally, hospitals have seen an increase in indigent patients directly related to rising unemployment rates and a decrease in worker benefits, a reduction in elective healthcare spending, and rising supply costs driven in part by the higher petroleum costs.

In this already tenuous environment, hospitals are having to deal with their recent substantial investment income losses and the inevitability that charitable giving is likely to decline during this type of economy. To survive, hospital leaders must adopt an even higher level of financial conservatism that, in turn, will impact both future investments and capital allocation. Projections are now being made that hospital capital spending growth will begin to slow down in mid-2009. Given the limited amount of capital dollars, prioritization of fiscal spending will become imperative. Top priorities will likely include physician practice acquisition, an increase in IT system investments geared towards supporting quality and efficiency, and an emphasis on maintaining critical clinical equipment. Hospitals in a stronger financial position are more likely to obtain financing and thus more likely to move forward with capital investment plans. In contrast, some of the smaller or financially weaker hospitals who must expand and update to remain competitive will have a difficult time raising necessary capital.

Nevertheless, history has shown us that challenging times foster extraordinary opportunities for paradigm-shifting innovations. The current market is primed for creative approaches to the biggest issues hospitals are facing. New care delivery models, innovative ways to manage information, and new financing structures are only a few areas that will ultimately change to benefit healthcare providers and help them overcome this latest challenge.