CLEVELAND, Ohio — Rising demand for charity care and levels of bad patient debt are problems for most hospitals as the nation struggles to pull itself out of the worst economic recession in a generation.
However, hospitals that were on sound financial footing — and those that tightened their belts — prior to the recession now are rebounding and have even begun hiring again. Unprepared, small or independent hospitals are likely to still be hurting.
“The economy’s impact on different hospitals is similar to the economy’s impact on different individuals,” said Tiffany Himmelreich, spokesman for the Ohio Hospital Association. “Hospitals that had a lot of reserves or were doing better on their profit margins before the economy tanked have probably been able to weather the storm a little bit better than hospitals that have not.”
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A hospital’s size often factors into its financial footing. “The hospital association has found that larger hospitals and hospitals that are part of a system have more of a financial cushion than smaller or independent hospitals,” Himmelreich said. It’s the small and independent hospitals that “the economy and this new state budget tax are starting to hit the hardest.”
The association has been calling the hospital corporate franchise fee that was part of the state budget passed in July a “tax” because it is based on a percentage of hospital expenses, including uncompensated care for patients who can’t afford to pay. In a way, Ohio hospitals now pay twice for providing charity care. Last month, hospital leaders told their association the looming fee already had caused some hospital job cuts. Summa Wadsworth-Rittman Hospital, for one, reorganized after its January 2008 purchase by Summa Health System of Akron, said Chuck Alderson, who is chief financial officer for both the Wadsworth hospital and Summa Barberton Hospital. “We reduced about 30 [full-time jobs], that’s about 10 percent of our workforce, in August,” Alderson said about the Wadsworth hospital. “We stopped offering obstetrics and delivery services as of Oct. 31. That was probably 20 more jobs.”
The moves were largely made “to get back to the positive side of the ledger,” he said. “There’s been a lot of reorganization in our market.”
Some hospitals that started the recession with positive financials now expect to hire thousands of workers. The Cleveland Clinic is looking to fill 1,800 jobs next year. The Clinic had strong revenue growth going into the recession. But it’s always looking to pare costs, said Steven Glass, the system’s chief financial officer.
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“A year ago, we were focused on hiring freezes and cutting non-clinical expenses across the organization to help us better manage going into what was a very difficult economic time for any business,” Glass said. “Effective cost management and innovation” are the two main reasons why the Clinic is now in the position to hire, he said.
Effective supply management — another cost-minimizing practice — can be an argument for “bigger is better.” Generally, bigger hospitals are more able to negotiate lower supply costs. By combining with Summa, Wadsworth-Rittman and Barberton hospitals, and their system now save $10 million a year “for cooperating rather than competing,” Alderson said.
Meanwhile, spreading fixed costs — those that are stable no matter how many patients are treated — among more patients has the effect of lowering costs. That means the bigger the hospital, the better.
Hospitals that had positive financial results prior to the recession — such as the Cleveland Clinic, University Hospitals and MetroHealth System, all in Cleveland — also stand a better chance of emerging from the economic storm by hiring workers, said Bill Ryan, president and CEO for the Center for Health Affairs, the hospital association in Northeast Ohio.
“It has to do with how successful the hospitals were prior to the down cycle,” Ryan said. “If they were not proactive when there was the opportunity to make money, and are now caught not only with a decline in demand, but with a bunch of people who are uninsured or on public insurance programs, those hospitals are really scrambling.”
That’s because “the difference between making money in a hospital and losing money in a hospital comes down to two things: Payer mix and service mix,” Ryan said.
For instance, teaching hospitals get some of their operating money from research grants — which generally are not hurt by recessions — but community hospitals don’t. Meanwhile, community hospitals get more of their money from public and private insurers — and from individual patients, who can lose their jobs and health insurance during a recession.
As for services, it’s surgical procedures — not medical procedures like treating patients for the flu — that bring in the money. Community hospitals treat more “people with pneumonia and the flu, and diabetes that’s out of control” than do teaching hospitals, Ryan said. “It’s very hard to make a margin with that kind of business. As your business moves farther away from surgical admits, you lose that market share.”
