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The Financial Crisis and Washington Hospitals

The Financial Crisis and Washington Hospitals. December 2008 Updated: March 31, 2009. Executive Summary Update. Hospital financial health continued to worsen in the fourth quarter. Washington hospital margins decreased further and the average total margin was negative in the fourth quarter.

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The Financial Crisis and Washington Hospitals

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  1. The Financial CrisisandWashington Hospitals December 2008 Updated: March 31, 2009

  2. Executive Summary Update • Hospital financial health continued to worsen in the fourth quarter. • Washington hospital margins decreased further and the average total margin was negative in the fourth quarter. • Many volume indicators were down from 2007 levels. • Nationally, most balance sheet ratios continued to weaken. • Washington “caught up” to the U.S. as general measures of the economy sour. Our hospitals continue to do slightly better than U.S. • The credit crisis continued, and it was still difficult and expensive for hospitals to get financing. • In 2009, things continue to worsen: • The state budget deficit increased by almost $3 billion. • Many hospital leaders across the state report worsening operations. • Maximum unemployment benefits are increasing dramatically. 2

  3. Data Source: dshort.com, Doug Short, Ph.D., AAMS, CRPC, AWMA.

  4. A recent survey of Washington hospital leadership found economic factors led 62% to stop or postpone capital projects. Reasons for Postponing Projects Factor in Decision Data Source and Graph Source: WSHA 2009 Board Retreat Survey 5

  5. In January 2009, the Washington unemployment rate passed the U.S. average. Data Sources: National - Department of Labor, Bureau of Labor Statistics, Labor Force Statistics. Washington - Washington State Employment Security Department, Labor Market and Economic Analysis Branch. Resident Civilian Labor Force and Employment in Washington State, Seasonally Adjusted. 6

  6. Unemployment costs will jump dramatically before any impact of job cuts. “Stimulus” legislation at both the federal and state level means that Washington hospitals will see: • Maximum weekly benefit will increase 13 percent from $541 to $611. • Maximum benefit period will increase from 26 to 72 weeks. • Together there is a 213 percent increase in the maximum benefit available. • Also, claimants who quit to follow a spouse or domestic partner are no longer disqualified from unemployment compensation. 7

  7. Hospitals will be negatively impacted by state budget cuts under any of the three scenarios. Data Source: Health Information Program Analysis of Proposed Washington State budgets, April 2009. 8

  8. Proposed state budget cuts could force hospitals to layoff workers. Data Source: Health Information Program Analysis of Proposed Washington State budgets, April 2009. 9

  9. Cuts to GAU and Basic Health Plan will create thousands of newly uninsured overnight. Data Source: Health Information Program Analysis of Proposed Washington State budgets, April 2009. 10

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  12. Washington margins shrank in the last six months of 2008, but were still higher than the U.S. averages. Total Margin Operating Margin Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of March 27, 2009. 13

  13. Washington hospital total margin declined in the last six months and was negative in the fourth quarter of 2008. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of March 6, 2009. 14

  14. Washington fourth quarter operating margin in 2008 was 38 percent lower than in 2007. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of March 6, 2009. 15

  15. Uncompensated care percentage remained constant from 2007. 5.0% 4.8% 4.8% 4.4% Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of March 5, 2009. 16

  16. Inpatient surgery, emergency visits and ambulatory surgery decreased from 2007 levels in the fourth quarter. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of March 5, 2009. 17

  17. Most U.S. hospital financial ratios weakened since the end of 2007, with the last six months being significantly worse. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of March 5, 2009. 18

  18. Almost all indicators for Washington hospitals are weaker in the last half of 2008 than in 2007. Data Source: DATABANK Quarterly Financial Reporting System unaudited data, as of March 27, 2009. 19

  19. What’s happened since January 1, 2009? Operations In mid-March 2009, a survey of Washington hospital executives found: • Decreased inpatient activity was experienced by 27 percent of respondents, while 18 percent reported declining outpatient visits • 60 percent have seen operating margins continue to decrease • 40 percent are seeing an increase in Medicaid as a percent of business • 56 percent noted an increase in charity and bad debt • Charitable donations are declining as seen by 34 percent 20

  20. What’s happened since January 1, 2009? Capital Expenditures The same survey found: • 17 percent stopped a project already in progress • 58 percent decided not to move ahead with new projects • The top three reasons given were • Economic uncertainty • A decline in reserves and endowments • Usual sources of capital were unavailable 21

  21. In 2008, despite general weakness, hospital RN vacancy rates and demand continued to grow. *2002-07 data was estimated; 2008 data was not estimated (n=73) 22

  22. What’s happened since January 1, 2009? Staffing The mid-March 2009 executive survey found: • Almost 23 percent had completed layoffs with about 10 percent planning more. • 24 percent had implemented a hiring freeze • 83 percent had a decline in turnover of clinical staff • 43 percent had frozen executive compensation and 40 percent had frozen or reduced executive bonuses 23

  23. Demand for Health Care Workers • Hospitals are struggling financially and lay-offs may affect those in patient care • The need for health care workers remains, but budgets are curbing demand, temporarily • Demand for health care is tied to demographics rather than economics 24

  24. A Temporary Lull • The economic crisis is an opportunity to gain ground on health work force shortages • Investment in training today will pay dividends in the coming years 25

  25. 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 hospitals 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. 26

  26. For Further Information Jim Cannon, Executive Director Health Information Program (206) 216-2551 jimc@wsha.org Special thanks to Laurina LaStella, Lead Data Analyst, of the Health Information Program for data analysis and chart development.

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