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Impact of the Economic Downturn on Hospitals FINAL January 14, 2009

Impact of the Economic Downturn on Hospitals FINAL January 14, 2009. Unemployment has grown markedly over the past year. Chart 1: Unemployment Rate (Non-farm), 2007-2008. 44% increase.

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Impact of the Economic Downturn on Hospitals FINAL January 14, 2009

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  1. Impact of the Economic Downturn on HospitalsFINALJanuary 14, 2009

  2. Unemployment has grown markedly over the past year. Chart 1: Unemployment Rate (Non-farm), 2007-2008 44% increase Source: Department of Labor, Bureau of Labor Statistics, Labor Force Statistics. (2008). Access at: http://www.bls.gov/oco/cg/cgs035.htm.

  3. As individuals lose employer-sponsored insurance, pressures on Medicaid increase. Chart 2: Percent of Population with Employer-sponsored Insurance (ESI) and 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.

  4. Many states face budget shortfalls… Chart 3: States with Budget Gaps in FY 2009 or Projected for FY 2010, as of December 23, 2008 No Budget Gap FY09 and/or FY10 Budget Gap Source: McNichol, E., and Lav, I.J. (23 December 2008). State Budget Troubles Worsen. Washington, DC: Center on Budget Policy and Priorities.

  5. …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 Total Spending: $1.46 Trillion Source: National Governors Association and National Association of State Budget Officers. (June 2008). The Fiscal Survey of States. Washington, DC.

  6. 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.

  7. 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 Source: AHA. (November 2008). Rapid Response Survey, The Economic Crisis: Impact on Hospitals.

  8. More than half of hospitals’ revenue comes from Medicare and Medicaid… Chart 7: Percent of Gross Revenue by Payer, 2007 Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals.

  9. …yet Medicaid and Medicare payments to hospitals already fail to cover costs. 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.

  10. 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.

  11. 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 Patient Margin Operating Margin Total Margin 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.

  12. Chart 11: Percent Change in Employment, Seasonally Adjusted: Hospital vs. All Industries (Total Non-farm), 2006 – 2008 Nationwide, hospital jobs are still growing even as employment in other industries declines. 2006 2008 2007 Source: Department of Labor, Bureau of Labor Statistics. (2008). Link: http://www.bls.gov/bls/employment.htm. *2008 Qtr 4 data are preliminary.

  13. 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 Source: AHA. (November 2008). Rapid Response Survey, The Economic Crisis: Impact on Hospitals.

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