VCU news

By Eric Peters

Because of their current financial positions, nearly one quarter of U.S. hospitals examined in a recent Virginia Commonwealth University-led study face operating challenges as health care reform begins to take effect.

Researchers studied how private for-profit and nonprofit hospitals of varying financial conditions fared through the recent Great Recession and examined how the recession might affect their ability to respond to future industry challenges.

While the financially vulnerable hospitals recovered after the recession, they only recovered to their pre-recession, at-risk positions. Furthermore, their recovery was fueled by increases in non-patient care revenues while profitability in their main business of patient care continued to decline.

“Major payment reform and industry restructuring brought on by the passage of the Affordable Care Act will place significant pressures on hospitals of all types, but especially for financially weak and safety net hospitals,” according to the study, which was published  in the May issue of the journal Health Affairs.

“The implications here are for policymakers,” said lead author Gloria Bazzoli, Ph.D., Bon Secours Professor in the Department of Health Administration, VCU School of Allied Health Professions. “You can’t use one size fits all when you look at the hospital industry and when planning the way hospitals are reimbursed. It is important for policymakers to design payment policies so that they do not expose weak hospitals to substantial financial risk that ultimately may compromise patient care.”

Of 2,971 hospitals studied, 24.6 percent were classified as financially weak before the Great Recession, 13.4 percent as mixed and 62 percent as financially strong. Eleven percent of the total was made up of nonprofit safety net hospitals, and of that group, 27.9 percent were financially weak.

U.S. hospitals generally experienced temporary reductions in total margins during the recession, but recovered. Bazzoli said while this sounds like good news, it is important to understand that the financially weak hospitals will face unique challenges when they retool their organizations and rethink their markets as implementation of the Affordable Care Act continues.

The full study, “Hospital Financial Performance In The Recent Recession And Implications For Institutions That Remain Financially Weak,” can be found online at  http://content.healthaffairs.org/content/33/5/739.abstract.