The Financial Crisis and Washington Hospitals

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The Financial CrisisandWashington Hospitals

• Jim Cannon, Executive Director
• Laurina LaStella, Lead Data Analyst
• Updated February 2009

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Executive Summary

• Hospital financial health is worsening as
  investment income declines, gains turn to losses,
  and interest expenses and contractual adjustments
  increase.
• Washington hospital margins are decreasing.
  Although still positive for the Third Quarter
  2008, they are negative for September.
• Net revenue is down and non-operating revenue is
  down significantly.
• Nationally, most balance sheet ratios have
  weakened.
• Washington may not yet be experiencing the
  recessions full effects as volume is up while
  across the U.S. volumes are down. Our payer mix
  appears unchanged.
• The capital crunch is making it difficult and
  expensive for hospitals to get financing due to
  rising borrowing costs and decreased capital
  access.
• Government budget problems raise worries about
  Medicaid and Medicare payment cuts. About 55
  percent of Washington care is paid for by these
  programs which already pay below the cost of care.

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Total margin for Washington hospitals decreased
to -1.3 in September 2008.
Data Source DATABANK Quarterly Financial
Reporting System unaudited data, as of December
4, 2008.
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Washington total margin has shrunk, but operating
margin is stable.
Operating Margin
Total Margin
Data Source DATABANK Quarterly Financial
Reporting System unaudited data, as of December
4, 2008.
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Washington total margin is declining faster than
operating margin due to a steep decline in
non-operating revenue.
Data Source DATABANK Quarterly Financial
Reporting System unaudited data, as of December
4, 2008.
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Preliminary data shows uncompensated care has
increased due to increases in charges.
Data Source DATABANK Quarterly Financial
Reporting System unaudited data, as of December
4, 2008.
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Almost all indicators for Washington hospitals
are weaker than in 2007.
Data Source DATABANK Quarterly Financial
Reporting System unaudited data, as of December
4, 2008.
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Washington volumes are increasing while U.S.
volumes are declining.
Data Source DATABANK Quarterly Financial
Reporting System unaudited data, as of December
4, 2008.
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The credit crunch increases borrowing costs --
making financing more difficult to find for
facility and technology improvements.
Percent of U.S. Hospitals Reporting Credit Crisis
Impact
Type of Impact
Data Source AHA Rapid Response Survey, November
2008.
Graph Source AHA Report on the Economic Crisis
Initial Impact on Hospitals November 2008.
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Most U.S. financial ratios weakened since the
beginning of 2008. Third quarter performance was
significantly worse.
Data Source DATABANK Quarterly Financial
Reporting System unaudited data, as of December
4, 2008.
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Since January 2007, unemployment rate increased
37 in Washington and 41 for U.S.
Data Sources National - Department of Labor,
Bureau of Labor Statistics, Labor Force
Statistics, 2008. Washington - Washington State
Employment Security Department, Labor Market and
Economic Analysis Branch, November 18, 2008.
Resident Civilian Labor Force and Employment in
Washington State, Seasonally Adjusted.
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Excluding K-12 education and debt service, the
deficit equals 23.2 of total state expenditures.
Data Source State of Washington Office of
Program Research, 2009-11 Budget Outlook
December 2008.
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Medicaid rate cuts could result in many hospitals
in Washington with negative margins.
Data Source Hospital Financial Year-end Reports
submitted to the Washington State Department of
Health, Fiscal Year 2007.
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Notes on Data Sources

• Many of the data elements come from preliminary
  data. The numbers shown should not be taken as
  definitive, but show trends.
• Many of the elements are based on a reporting
  system called DataBank. Not all hospitals report
  all indicators
• Between 66 and 94 Washington hospitals reported
  specific data.
• Nationally, between 500 and 700 of the almost
  6,000 hospitals reported, depending on the
  indicator. These hospital represent 30 states.
• DataBank is adequate to represent trends and
  direction. The American Hospital Association
  used the same data set for its recent national
  analysis.

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For further information

• Jim Cannon, Executive Director
• Health Information Program
• [phone]
• jimc_at_wsha.org