In a study recently published by ITG Market Research, 70% of executives at U.S. hospitals reported that their facility's financial performance in the fourth quarter of 2011 was better than expected.  However, 85% of surveyed hospital executives reported they are very concerned about the impact of reduced reimbursement rates on their facility's financial performance in 2012 and 48% expect business conditions for the US hospital industry to deteriorate over the next 12 months.  Only 5% expect improved business conditions in the coming year.

"Hospital executives are understandably worried. The reimbursement cuts expected in 2012 will have a direct impact on hospitals' bottom lines, and there is still a lot of uncertainty regarding the timing and impact of further healthcare reforms.  If you add in the general unease about the overall U.S. economy, you have a storm of difficult challenges that hospitals are struggling to respond to at the same time," said Graeme Christianson, Vice President of Healthcare Market Research at ITG.   

The reported results were obtained from a survey fielded in December 2011 of executives from 100 hospitals and hospital systems of various sizes across the U.S.  These executives, including CEOs, CFOs, COOs, CIOs, CMOs, and Managing Directors, reported that operating margins are being pinched by the combined growth of uninsured and Medicaid / Medicare patients.  Furthermore, physician and nursing shortages in some areas are making it difficult to respond to the changing environment and are harming morale as staff are stretched to take on additional responsibilities. Looking forward, surveyed executives also reported concerns about the burdens associated with the RAC (Recovery Audit Contractor) and the newer Zone Program Integrity Contractor (ZPIC) programs, two pieces of federal legislation that are designed to detect, deter, and prevent Medicare fraud and abuse.

The survey showed some signs of optimism.  While many executives reported that Electronic Medical Records (EMR) systems have been more expensive to implement than expected, a growing number of hospitals have fully functioning EMR systems coming online which are expected to yield significant savings in productivity and timely billing.  There have also been some successes in bringing physicians and staff on board with cost-cutting and productivity initiatives, and many hospitals have been able to partner with suppliers more effectively to reduce costs while maintaining high-quality care. 

"Many hospitals are trying to proactively address the anticipated challenges," said Christianson.  "We are seeing a jump in utilization of aggressive supply and cost management strategies, and many hospitals are consolidating the number of suppliers they work with to increase their control and bargaining power.  Despite the economic headwinds, many hospitals are also continuing to invest in productivity-enhancing technologies and equipment in an effort to help their staff do more with less."

The survey results suggest that smaller hospitals are likely to face the greatest difficulties adapting to the changing market conditions.  Mergers of hospitals, private practices, and clinics are likely to become more common through 2012, as healthcare providers look for ways to combine resources, reduce duplication of service offerings, and improve bargaining power with suppliers.  Furthermore, the uptake of Pay-for-Performance and Accountable Care initiatives are progressing, but primarily within larger hospitals and systems that have more resources available and are comfortable taking greater risks.