Focus on Healthcare Finances Will Only Get Greater

Margin pressures are not new to healthcare organizations. As hospitals and health systems wait in limbo as the healthcare reform debate continues, they will only increase. A recent Becker’s Hospital Review article highlights the need for health systems to continue to find ways to re-structure in order to find added value and remain viable: Activity-based costing, team commitment, understanding the drivers of work and embedding cost savings into operations.

It also lists 10 areas that the author recommends health systems target for maximum cost improvement: Manage the healthcare cost of your own workforce, eliminate subscale services, optimize service line spend, maximize IT spend, flex the workforce, find the waste, reconsider capital spend, reduce the cost of leakage, reduce bad debt and avoid potential costs.

Can Healthcare Continue Its Outperformance Streak?

As a sector, healthcare has had a good run. According to S&P, “The health care sector has outperformed the broader market over each of the last five years.” That’s the good news.

Yet, despite a stable outlook, and even optimism that healthcare can continue to outperform the broader market in 2016, S&P notes some challenges.

The nonprofit sector’s stability is predicated on a boost from Medicaid expansion and the insurance exchanges under the Affordable Care Act. But, there are negative pressures at nonprofits, including difficulty with poor IT installation, weaker patient volumes and the cost of absorbing physician practices. “The strongest hospitals and health systems are likely to just hold existing margin and reserve levels, while weaker providers will likely continue to see operating margin and cash flow erosion and eventually balance sheet pressure.”

Healthcare Providers Are Feeling the Squeeze: Cost-cutting alone just won’t cut it

“Healthcare providers as a group continue to operate with slim and shrinking margins,” according to recent analysis from Modern Healthcare. Sadly, that’s not a surprise to most of us. The study—which included acute-care, post-acute care, rehabilitation and specialty hospital groups as well as stand-alone hospitals— found that the average operating margin in 2013 was 3.1%, which was down from 3.6% in 2012. Over 61% of organizations saw their operating margins erode over the previous year.

While we’ve seen this coming, the news is sobering. And analysts are skeptical that the worst is over. According to Modern Healthcare, all three credit-rating agencies hold negative outlooks for the not-for-profit healthcare sector.

Healthcare Margins