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A.M. Best Special Report: Weak Margins Threaten Survival of Smaller, Not-for-Profit Hospitals

Source: A.M. Best

Posted on 18 Aug 2009

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According to a special report released by A.M. Best, insufficient attention to the bottom line is making it difficult for many small and midsize not-for-profit hospitals to effectively carry out their mission and is endangering their long-term survival.

In recent years, many hospital facilities under financial distress have been forced to discontinue service lines and/or close, merge or consider entering into joint ventures with larger hospitals, health systems, physicians and private investor groups.

In general, smaller hospital facilities historically have been less profitable, and many struggle to meet a 1% to 3% margin. This is related to lack of economies of scale, poor payor mix, higher overhead costs, fewer high margin specialty service lines and an overall lower revenue base.

As hospitals seek to improve facilities, equipment and information systems and respond to the evolving requirements for health information technology, access to capital is critical, particularly as these hospitals try to preserve liquidity.

Over the past year, however, there have been ongoing issues for these hospitals surrounding access to the financial markets. A.M. Best Co. believes that small to midsize, stand-alone, not-for-profit hospitals will remain challenged in the near term, given the volatility in the capital markets and the generally negative economic conditions.

The evolving regulatory environment and the potential for government reform could have a major impact on the hospital and health care industry, finds the report.