The Ugliest Duckling…


Moody’s Investor Services recently came out with their Investor Report for the not-for-profit healthcare market and to say that it was bleak would be an enormous understatement.

  • Revenues and cash flow margins hit all-time lows in 2013
  • Operating revenue dropped to an all-time low of 3.9%, from 5.1% in 2012 and the   industry norm of 7%
  • Expense growth grew faster than revenue growth for the second year in a row
  • High deductibles are forcing patients to delay procedures or to utilize cheaper channels (outpatient, clinics, etc.)
  • Mandated Medicare cuts have accelerated
  • Bad debt levels continue to increase due to patients failure to pay for care

“As hospitals feel the squeeze of payment reductions, they are trying to cut costs to keep up with the lower revenues, which is becoming increasingly difficult,” said Todd Nelson, director of healthcare finance policy, operational initiatives, at HFMA. “Additionally, combining shifts in payment methodologies with higher out of pocket payments by patients has made it even more challenging to maintain cash flow at higher levels.”

This is clearly not sustainable. Nor is the strategy currently in place to combat these ills. Cost cuts can only go so far, and providers need to be careful as the new regulatory environment puts a high requirement on quality. Delaying capital expenditures will help in the short term, but will often come back to bite you.

And this won’t get better anytime soon. According to Moody’s, “One important cause of the revenue slowdown has been a shift to lower-reimbursed outpatient visits and observation stays from inpatient admissions. The 2013 medians show inpatient admissions declining as outpatient services grew, at a negative rate of 1.3% after flat growth since 2009. The rate of growth for outpatient admissions slowed for the first time in 2013, suggesting a decline in the demand for healthcare services overall.”

Now we cannot say for certain until we are able to better link outcomes to payments, but isn’t this the behavior that we intended to influence in the first place?

The industry is at an important crossroads. The market is clearly broken, and it is making some changes to address that. But the healthcare provider market really needs to be turned on its head in order to right itself.

There is no magic pill unfortunately. But a positive first step would be for providers to focus on top-line growth and become proactive rather than reactive in achieving it! For too long the healthcare market has been thinking that it is so different than standard businesses. I have previously written about this in my blog Shift to Healthcare Consumerism: The Business of Healthcare. It isn’t! It is driven by supply and demand and it is about time that providers started acting that way.

Providers need to define their market strategy, identifying the service lines that they deliver best and focus on the specialties and patients that they can help best, all while building a sales and marketing engine in order to attack the market! So what are we waiting for?