U.S. hospital profits fall to zero: Thomson Reuters

WASHINGTON Mon Mar 2, 2009 4:45pm EST

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WASHINGTON (Reuters) - Plunging revenues from investments have forced median profit margins for U.S. hospitals to zero, according to a Thomson Reuters analysis of hospital finances published on Monday.

And half of the more than 400 hospitals studied are losing money, the analysis found.

Ironically, other sources of income are not down for most hospitals, said Gary Pickens, chief research officer for the Healthcare business of Thomson Reuters.

"Just like it hurts when people open up their 401(k) statements, it is like that for hospitals only much, much worse," Pickens said in a telephone interview.

"This is something we haven't really ever seen before," he added. "Hospitals are facing unprecedented economic stress and many of the indicators we're seeing suggest that things will get worse before they get better."

Pickens said hospitals operate on a profit margin for 3 percent to 4 percent so they have little wiggle room.

"While operating margins are generally holding steady, non-operating margins have all but disappeared from hospital balance sheets. That makes it difficult for hospitals to secure financing for new equipment and to fund expansion efforts," he said.

Thomson Reuters Healthcare, a division of Thomson Reuters Corp, tracked more than 20 financial indicators at 439 small, medium and large U.S. hospitals for the study.

These included revenue and profit, or total margin for non-profit hospitals, employment levels, closures, inpatient volume, reimbursement rates, and frequency of elective medical treatments. It found:

-- The median total margin among the 439 hospitals in the study was zero percent in the third quarter of 2008, the lowest ever seen.

-- 50 percent of hospitals were unprofitable in the third quarter of 2008.

-- Payments that hospitals received from Medicare, Medicaid and private insurers were growing but at a declining rate through the end of 2008.

-- Median cash-on-hand reached an historic low in the third quarter of 2008, demonstrating the impact of the credit crisis on liquidity.

"In terms of what they can do, they are a little bit between a rock and a hard place," Pickens said. "The demand for their services is continuing."

Cutting labor costs is not an option, he noted. "What I think is they should focus on efficiency," he said.

He noted that a study published in the New England Journal of Medicine last week showed large geographical variations in spending on medical procedures around the United States with little difference in outcome -- a study that suggested it is possible to spend less and still help patients.

The report said there had been no indications of bed closures, mass layoffs, declining patient volumes or a decline in elective procedures.

President Barack Obama is trying to kick-start a plan to reform the healthcare industry in the United States and plans a "summit" of experts, legislators and lobbyists at the White House on Thursday.

(Reporting by Maggie Fox, editing by Will Dunham, Bernard Orr)

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