Dive Brief:
- Hospitals shouldn't rely on the stock market to buoy balance sheets and should find ways to provide care more cost-efficiently before the next economic downturn, a new Juniper Advisory analysis warns.
- The investment banking firm reviewed audits from 90 independent hospitals in California, Florida, Illinois, Indiana, Iowa, Minnesota, Ohio, Texas and Wisconsin. The average annual revenue was $437 million.
- Of those, 61% had operating margins under 3%, with the average operating margin being -0.8% and average net income margin 3.7%. Operating performance, on average, lowered net margin by 21%. Of concern, the review found that, on average, 47% of net margin was tied to revenue from investment income, which would disappear if the stock market declined.
Dive Insight:
That translates to a "tenuous" financial situation for many hospitals, Juniper Advisory concludes. Recent stock market fluctuations, fueled by uncertainty over tariffs and trade and Federal Reserve policy, have highlighted the precariousness of investment income. And while large health systems can often trim costs by eliminating waste and negotiating higher rates with private insurers, smaller systems and independent hospitals aren't likely to have that option.
"We've been watching the ongoing economic growth, which is good for hospitals and their patients, but the economy will not always be as strong as it has been the last few years," David Gordon, principal at Juniper Advisory, said in a statement. "When that time comes, hospitals will have to demonstrate that they can provide care much more cost-efficiently."
Fitch Ratings and Moody's Investor Services have both forecast continued financial struggles for nonprofit hospitals in the coming year. Fitch predicts acute care operating profitability will decline for a third straight year, but suggests "most hospitals will be able to offset short-term operational pressures with their absolute levels of cash and investments."
Meanwhile, Moody's revised its outlook for the nonprofit and public hospital sectors from stable to negative for this year. The credit rating agency warned hospitals are on an "unsustainable path" due to high spending and low revenue growth.
With shrinking volumes and low reimbursement rates, hospitals will look wherever they can to find the cash they need to operate. In rural Oklahoma, one hospital even turned to GoFundMe to pay off debt and stay afloat, asking the community to pitch in to keep the facility's door open.
Closing the hospital would force patients to travel at least 30 minutes to another acute care hospital, Pauls Valley Hospital Authority CEO Frank Avignone said at the time. Days later, the hospital had raised just over $3,000, a smidgen of its $2 million goal.