Top 10 Hospital Stories of 2008

Healthcare observers were split between the November elections and the economic downturn as their choices for the top hospital stories of the years. Both impacted hospitals in multiple ways and will continue to exert influence on hospital finances and operations and access to quality hospital care for years to come.

While the obvious top choices were related to the economy and the elections, laws, regulatory and reimbursement changes, executive turnover and government inaction also impacted hospitals in 2008. Surprisingly, there were no ground-breaking qui tam lawsuits, civil settlements or criminal cases making the list, nor were there any huge healthcare transactions like last year's $5.1 billion purchase of Triad Hospitals by Community Health Systems.

Here are the choices of top healthcare industry leaders for the stories that affected hospitals the most in 2008.

1. Economy. No surprise here. It's frozen credit and financial markets, shrunken hospital investment portfolios and cost millions their jobs and health insurance. With the decline in personal and corporate revenue comes the reduction in state and federal tax income, causing government hospital owners and Medicare and Medicaid to cut and reassess spending on health programs.

"The economic meltdown has already had a big effect on hospitals and we haven't felt the complete blow of it yet," says Chip Kahn, president and CEO of the Federation of American Hospitals. "It's been a triple whammy." The economy was such a big story it takes up numbers one through four.

2. Turmoil in the housing and financial markets and the credit crunch. "This has impacted the cost of capital and access to it," according to Dick Clarke, president and CEO of the Healthcare Financial Management Association (HFMA). Mr. Clarke says more hospitals and health systems will merge or consolidate facilities because of capital shortages.

"Some will close due to an inability to keep their doors open without lines of credit and access to short term capital," he predicts. He says that hospital construction projects may be delayed or cancelled without access to capital, too. "This could be revolutionary if it lasts awhile," Mr. Clarke says. "There is still much resistance to funding healthcare debt."

3. Rising unemployment. HFMA's Mr. Clarke says the speed and spread of layoffs and plant closings means millions of insured Americans will lose access to health insurance in the coming year. "This will affect hospitals because we're already seeing volume declines in hospitals. Coupled with declines in state and federal tax revenues, there will be more people seeking charity care and more states cutting back on big ticket item expenditures like Medicaid," Mr. Clarke says. "Those programs are likely to reduce coverage and payments to providers and cut eligibility. The federal government will also look at identifying savings by making changes in its payments. Collectively, that probably means greater pressure on emergency rooms from patients without insurance."

4. Market collapse. The stock market's collapse sent stock values plummeting. That's had two effects: to decrease the value of stocks of publicly-traded hospital companies and to reduce the value of hospital investments. David Felsenthal, a partner in the Chicago-based firm Principle Valuation and a 50-year veteran of the hospital valuations industry, says the market fall poses a real challenge to hospitals and said the decline in share values of for-profit chains could have long-term growth implications for those companies.

Dallas-based Tenet Healthcare's stock dropped from $5.08 per share on Dec. 23, 2007 to $1.08 on Dec. 23, 2008. The stock for Community Health Systems of Nashville dropped from $36.86 over that same period to $13.39 per share. Mr. Clarke says the drop in hospital investment portfolios has "considerably weakened the balance sheets" of hospitals and health systems from one year ago. "They've lost between 10 percent and 40 percent of their portfolio," he says. In November, Moody's posted a negative outlook for healthcare, which had been stable."

5. November elections.
Democrats, the political party that traditionally supports universal healthcare and broader access to healthcare services, won decisively, controlling the Senate by nearly a veto-proof margin and holding a sizable advantage over Republicans in the House of Representatives. More importantly, Sen. Barack Obama's victory in the presidential election and nomination of former Sen. Tom Daschle to HHS' secretary signals a significant change away from the market-based health reform initiatives implemented during the Bush Administration.

Dick Hanley, president and CEO of Broomfield, Conn.-based surgery center development company Health Inventures, says Sen. Obama's election and the economic downturn have focused national attention on healthcare reform and universal health coverage.

"There's no question that it is coming, whether it's in 10 months or two years," Mr. Hanley says. "Historically, this has been proposed eight times in our nation's history, but now the odds are greater than ever before. And because of the change in administration, focus on the issue is accelerating at a much faster rate."

Thomas Dolan, president and CEO of the Chicago-based American College of Healthcare Executives (ACHE), agrees the election offers real hope for healthcare reform. "While there were many reasons Sen. Obama won, healthcare was obviously an issue in this election and the America people's desire to have meaningful reform," he says. "He jumped on it quickly by nominating Daschle, who will get a lot done. I think we'll see a lot more government activity in healthcare than in the past."

The Federation's Mr. Kahn concurs, saying Sen. Obama's choice of Sen. Daschle for HHS' secretary is very telling, calling it the "biggest predictor of the future."

6. Staffing and workforce issues. ACHE's Mr. Dolan says the supply of new nurses is not keeping pace with nursing retirement rates. "And what's even more depressing is this last year we turned away 30,000 qualified nursing applicants because we didn't have enough nursing student positions because of the lack of nursing faculty," says Mr. Dolan. "Some of the economic challenges can be fixed with money. But you can't grow nurses overnight. The same with primary care physicians. It takes so long to address those."

He says the average age of RNs in 2004 was 46.8, the highest average age since 1980 and Mr. Dolan says it has risen since then. In 2000, 33 percent of nurses were over 50, but by 2004 that figure had rise to 41 percent. In 1980, 25 percent of nurses were under 30. "But in 2008, only 8 percent were under 30," he says.

Mr. Dolan says the shortage of primary care physicians grew more critical in 2008 as primary care physicians are retiring faster than medical schools and residency programs can replenish them and as doctors gravitate towards higher paying specialties.
"This problem will continue to grow," he says.

7. Recovery Audit Contractor (RAC) programs. CMS began contracting with private companies who are paid a contingency fee to review hospital Medicare billings and find overpayments, recovering around $1 billion since the program's inception three years ago, according to HFMA's Mr. Clarke.

"This has caused hospitals to become very nervous, because not everything in big hospital organizations runs perfectly," he says. "Plus it's another administrative burden."

So far the RAC companies have been confined to states participating in the pilot demonstration project in California, Florida and New York, with the pilot later expanding to include Arizona, Massachusetts and South Carolina. But now that the program has been completed, the Government Accountability Office is producing a study to be released in Feb. 2009 and HHS hopes to launch the RAC program nationally.

Mr. Clarke says that the program will change the way hospitals do business, increasing investments in billing and auditing programs and seeking ways to overturn claims against them. He says that the companies are incentivized to find overpayments, which they did 96 percent of the time, and not underpayments, which they found only 4 percent of the time. He says through June 2008, providers appealed only about 20 percent of the findings against them, but were successful 35 percent of the time.

8. Legal and regulatory hurdles. Peter Liebold, executive vice president and CEO of the American Health Lawyers Association, said several legal developments rank among the year's top hospital stories, after the economy and the elections. Mr. Liebold says the CMS announcement that it would no longer pay for treatment or follow ups for so-called 'never events' captured hospitals attention. Mr. Liebold also says the revised IRS form 990 (a tax form that tax-exempt entities are mandated to complete and make public) will "lend new transparency to hospital charity care, community benefits and executive compensation."
ACHE's Mr. Dolan says the new 990s will motivate hospitals to get serious about measuring that community benefits uniformly and provide more data on executive compensation.

"They will have ramifications on community relations," he predicts.

Industry leaders say payment reform, such as the type mandated by CMS over bundling payments, will drive changes in hospital behavior. Mr. Clarke says the moves, which are driven by rising healthcare costs, the growing quality movement and "the brokenness of the system," could drive physician/hospital integration.

"There's a growing chorus of organizations looking at access to care and how to align incentives," he says.

9. Executive turnover. John Self, chairman and cofounder of the Dallas-based executive search firm John March Partners, said executive turnover was a big story this year that will bleed into 2009.

"The tightening economy contributed to the important secondary story of top hospital executives leaving or being asked to leave," Mr. Self says. "We're not just seeing it at the CEO level, but also the rungs just below. We've seen successful senior executives at an age where they could have retired several years ago now doing that. They're seeing that these economic times call for different skill sets and like war presidents during peace time, they realize they have skill sets that don't serve their organizations as well in changing times and a tough economy. Some are leaving before they're asked."

10. Federal legislative malaise. The Federation's Mr. Kahn views 2008 as a year that epitomized inaction.

"We had a Congress out of alignment with the president," he says. "2008 was the year of misalignment. Congress was only able to pass a version of the SCHIP bill extending it to March. This was symbolic of the failure to come to grips with healthcare during the Bush years."

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.