research and analysis by avalere health impact of the economic downturn on hospitals final january...
TRANSCRIPT
Research and analysis by Avalere Health
Impact of the Economic Downturn on Hospitals
FINALJanuary 14, 2009
Research and analysis by Avalere Health
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
% U
ne
mp
loy
me
nt
Chart 1: Unemployment Rate (Non-farm), 2007-2008
Source: Department of Labor, Bureau of Labor Statistics, Labor Force Statistics. (2008). Access at: http://www.bls.gov/oco/cg/cgs035.htm.
Unemployment has grown markedly over the past year.
44% increase
Research and analysis by Avalere Health
As individuals lose employer-sponsored insurance, pressures on Medicaid increase.
57%
58%
59%
60%
61%
62%
63%
64%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% o
f P
op
ula
tio
n w
ith
ES
I
6%
7%
8%
9%
10%
11%
12%
13%
14%
% o
f P
op
ula
tio
n w
ith
Med
icai
d
ESI Medicaid
Source: Current Population Survey, U.S. Census Bureau. (2008). Access at: http://www.bls.gov/oco/cg/cgs035.htm; and Fronstin, P. (November 2005). Sources of Health Insurance Characteristics of the Uninsured: Analysis of the March 2005 Current Population Survey. EBRI Issue Brief, No. 287.
Chart 2: Percent of Population with Employer-sponsored Insurance (ESI) and Medicaid
Research and analysis by Avalere Health
Many states face budget shortfalls…
No Budget Gap
FY09 and/or FY10 Budget Gap
Chart 3: States with Budget Gaps in FY 2009 or Projected for FY 2010, as of December 23, 2008
Source: McNichol, E., and Lav, I.J. (23 December 2008). State Budget Troubles Worsen. Washington, DC: Center on Budget Policy and Priorities.
Research and analysis by Avalere Health
…and Medicaid – comprising nearly a quarter of state spending – is a target for budget cuts.
Chart 4: Percent of State Spending by Function, FY 2007
Source: National Governors Association and National Association of State Budget Officers. (June 2008). The Fiscal Survey of States. Washington, DC.
Total Spending: $1.46 Trillion
All Other, 40% Medicaid, 21%
Higher Education, 10%
Transportation, 8% Elementary & Secondary
Education, 21%
Research and analysis by Avalere Health
The credit crunch is affecting hospitals in multiple ways.
Chart 5: Percent of Hospitals Reporting Various Effects of Credit Crisis, November 2008
Source: AHA. (November 2008). Rapid Response Survey, The Economic Crisis: Impact on Hospitals.
4%
7%
10%
11%
11%
12%
33%
Inability to Withdraw Funds Held by FinancialInstitutions
Acceleration of Debt
Inability to Rollover or Renew Credit
Difficulty Refinancing Auction Rate Debt
Inability to Issue Bonds
Increased Collateral Requirements
Increased Interest Expense for Variable Rate Bonds
Ty
pe
of
Imp
ac
t
Research and analysis by Avalere Health
More than half of hospitals are reconsidering or postponing investments in facilities and equipment.
Chart 6: Percent of Hospitals Reconsidering or Postponing Capital Expenditures, November 2008
39%
45%
56%
Information Technology
ClinicalTechnology/Equipment
NewCapacity/Renovations
Ty
pe
of
Ex
pe
nd
itu
re
Source: AHA. (November 2008). Rapid Response Survey, The Economic Crisis: Impact on Hospitals.
Research and analysis by Avalere Health
More than half of hospitals’ revenue comes from Medicare and Medicaid…
Medicaid, 14.8% Other Government, 1.5%
Medicare, 41.0%
Private, 42.7%
Chart 7: Percent of Gross Revenue by Payer, 2007
Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals.
Research and analysis by Avalere Health
…yet Medicaid and Medicare payments to hospitals already fail to cover costs.
-$35
-$30
-$25
-$20
-$15
-$10
-$5
$0
$5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Bil
lio
ns
Medicare Medicaid
Chart 8: Hospital Payment Shortfall Relative to Costs for Medicare and Medicaid, 1997 – 2007
Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals.
Research and analysis by Avalere Health
During economic downturns, the need for financial assistance and subsidized services swells.
Chart 9: Percent of Hospitals Reporting a Moderate to Significant Increase in Uncompensated Care and Need for Subsidized Services in Past Three Months, November 2008
Source: AHA. (November 2008). Rapid Response Survey, The Economic Crisis: Impact on Hospitals.
27%
31%
10%
20%
Community Needs forSubsidzed Services
Uncompensated Careas a Percent of Total
Revenues
Moderate Increase Significant Increase
Research and analysis by Avalere Health
The downturn is beginning to impact the financial health of hospitals.
Chart 10: Total, Operating and Patient Margins*, 3rd Quarter 2007 vs. 3rd Quarter 2008
Source: DATABANK, 557 hospitals reporting data for both 3rd Quarter 2007 and 3rd Quarter 2008 as of November 11, 2008.* Total Hospital Margin is calculated as the difference between total net revenue and total expenses divided by total net revenue. Operating Margin is calculated as the difference between operating revenue and total expenses divided by operating revenue. Patient Margin is calculated as the difference between net patient revenue and total expenses divided by net patient revenue.
-0.5%
3.9%
6.1%
-1.4%
2.9%
-1.6%
3Q 2007 3Q 2008
Patient Margin
Operating Margin
Total Margin
Research and analysis by Avalere Health
Chart 11: Percent Change in Employment, Seasonally Adjusted: Hospital vs. All Industries (Total Non-farm), 2006 – 2008
Source: Department of Labor, Bureau of Labor Statistics. (2008). Link: http://www.bls.gov/bls/employment.htm.*2008 Qtr 4 data are preliminary.
0.4%
0.7%0.7%0.8%
0.7%
0.5%
0.8%
0.6%
0.4%0.5%
0.7%
0.4% 0.4%
0.2%
-0.1%-0.2% -0.2%
-0.4%
-1.1%
0.3% 0.3%0.3%
0.6%
0.4%
-1.2%
-0.8%
-0.4%
0.0%
0.4%
0.8%
1.2%
Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4*
Qua
rter
ly (
3-M
onth
) P
erce
nt C
hang
e
Hospitals All Industries (Total Non-farm)
2006 20082007
Nationwide, hospital jobs are still growing even as employment in other industries declines.
Research and analysis by Avalere Health
Even so, many hospitals are making or considering cutbacks as economic concerns mount.
Chart 12: Percent of Hospitals Making or Considering Changes in Response to Economic Concerns, November 2008
21%
8%
12%
27%
53%
59%
Other
Considering Merger
Divesting Assets
Reducing Services
Reducing Staff
Cutting AdministrativeCosts
Source: AHA. (November 2008). Rapid Response Survey, The Economic Crisis: Impact on Hospitals.