Q: How are hospitals still feeling the effects of the economic downturn?
Dave Felsenthal: States are still struggling, and many states don't have the money to fund state-run Medicare and Medicaid programs. Often they can't pay the bills immediately, so this has resulted in slow payments to hospitals. Some states, like Illinois, are used to these delayed payments, but hospitals in other states will need to prepare for these delayed payments.
CEOs will have to be more effective in communicating this with their physicians. In the end, payments will be received, but administration needs to make sure that everyone understands what is going on.
Q: Will this affect larger and smaller hospitals differently?
DF: Obviously, bigger hospitals won't feel the pinch as much because they have the case volume and infrastructure to adjust to delayed payments.
The smaller hospitals also are doing okay, especially if they know how to collect reimbursements from commercial payors. This requires cooperation between groups, including physicians, administration and payors.
Q: Mergers and affiliation agreements continue to grab headlines. How does this affect hospitals?
DF: There will definitely continue to be more sales of hospitals. For-profit systems now have access to money, and, now that lenders are willing to provide capital, they are gung ho about buying. As a result, smaller hospitals will find it hard to survive independently. The bigger hospitals have the control of the market and can negotiate with insurers. Some single hospitals in areas where insurers aren't worried about losing business will be okay. But overall, it will come down to contracts with the insurers and who can negotiate the best rates. Hospitals with more than one entity will also do well. For example, [Adventist Health Care in Illinois] recently affiliated with three or four smaller hospitals who were looking to achieve the system's higher negotiation rates.
Mr. Felsenthal is a principle with Principle Valuation in Chicago. Learn more about Principle Valuation.