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The Financial Crisis and Washington Hospitals

The Financial Crisis and Washington Hospitals. Jim Cannon, Executive Director Laurina LaStella, Lead Data Analyst Updated February 2009. Executive Summary.

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The Financial Crisis and Washington Hospitals

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  1. The Financial CrisisandWashington Hospitals Jim Cannon, Executive Director Laurina LaStella, Lead Data Analyst Updated February 2009

  2. Executive Summary • Hospital financial health is worsening as investment income declines, gains turn to losses, and interest expenses and contractual adjustments increase. • Washington hospital margins are decreasing. Although still positive for the Third Quarter 2008, they are negative for September. • Net revenue is down and non-operating revenue is down significantly. • Nationally, most balance sheet ratios have weakened. • Washington may not yet be experiencing the recession’s full effects as volume is up while across the U.S. volumes are down. Our payer mix appears unchanged. • The capital crunch is making it difficult and expensive for hospitals to get financing due to rising borrowing costs and decreased capital access. • Government budget problems raise worries about Medicaid and Medicare payment cuts. About 55 percent of Washington care is paid for by these programs which already pay below the cost of care.

  3. Total margin for Washington hospitals decreased to -1.3% in September 2008. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of December 4, 2008. 4

  4. Washington total margin has shrunk, but operating margin is stable. Operating Margin Total Margin Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of December 4, 2008. 5

  5. Washington total margin is declining faster than operating margin due to a steep decline in non-operating revenue. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of December 4, 2008. 6

  6. Preliminary data shows uncompensated care has increased – due to increases in charges. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of December 4, 2008. 7

  7. Almost all indicators for Washington hospitals are weaker than in 2007. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of December 4, 2008. 8

  8. Washington volumes are increasing while U.S. volumes are declining. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of December 4, 2008. 9

  9. The credit crunch increases borrowing costs -- making financing more difficult to find for facility and technology improvements. Percent of U.S. Hospitals Reporting Credit Crisis Impact Type of Impact Data Source: AHA Rapid Response Survey, November 2008. Graph Source: AHA “Report on the Economic Crisis: Initial Impact on Hospitals” November 2008. 10

  10. Most U.S. financial ratios weakened since the beginning of 2008. Third quarter performance was significantly worse. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of December 4, 2008. 11

  11. Since January 2007, unemployment rate increased 37% in Washington and 41% for U.S. Data Sources: National - Department of Labor, Bureau of Labor Statistics, Labor Force Statistics, 2008. Washington - Washington State Employment Security Department, Labor Market and Economic Analysis Branch, November 18, 2008. Resident Civilian Labor Force and Employment in Washington State, Seasonally Adjusted. 12

  12. Excluding K-12 education and debt service, the deficit equals 23.2% of total state expenditures. Data Source: State of Washington Office of Program Research, “2009-11 Budget Outlook” December 2008. 13

  13. Medicaid rate cuts could result in many hospitals in Washington with negative margins. Data Source: Hospital Financial Year-end Reports submitted to the Washington State Department of Health, Fiscal Year 2007. 14

  14. Notes on Data Sources • Many of the data elements come from preliminary data. The numbers shown should not be taken as definitive, but show trends. • Many of the elements are based on a reporting system called DataBank. Not all hospitals report all indicators: • Between 66 and 94 Washington hospitals reported specific data. • Nationally, between 500 and 700 of the almost 6,000 hospitals reported, depending on the indicator. These hospital represent 30 states. • DataBank is adequate to represent trends and direction. The American Hospital Association used the same data set for its recent “national” analysis.

  15. For further information Jim Cannon, Executive Director Health Information Program (206) 216-2551 jimc@wsha.org

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