by Tony Chen
Last week, I was trying to explain to a 9-year-old how this financial crisis happened. I explained it this way:
"Let's say you get a dollar every day. But every day you spend a dollar and a quarter. After a few weeks and months, the people you've been borrowing that quarter from want their money back. so what do you do?" Obviously, this is an oversimplication of this whole deal. And I obviously didn't go into all the ins and outs of how everyday folks are allowed (and maybe even "encouraged") by various institutions, incentives, and policies to spend that extra quarter. Nonetheless, the kid was smart enough to say, "why didn't we just spend, like, 90 cents every day instead?" That statement basically sums it up for me.
Where does this leave hospitals? I guess it depends on whether we've been spending 90 cents or $1.25 on the dollar. And it depends on how much your hospital relies on credit. Here are a few broader implications that I've been ruminating over:
1. Bad Debt - This is always one of the key line items that Wall Street looks at, and rightfuly so. Are patients going to slow down payments? Will some bad debt turn into charity care?
2. Access to credit - Will it be harder (or more expensive) to secure credit for those capital projects that are in planning stage?
3. Investment income - This is the obvious one - just like everyone else, lots of hospitals will see severe negative investment income this year, which may be the difference of finishing the year in the black vs. red.
4. New Expansion Opportunities - Those hospitals who have been "saving up for a rainy day" may have a rainy day situation now. Especially with real estate, will market softness lead to some potential good deals on land or buildings in strategically located areas? Or maybe this is a good time to double-down on your outpatient strategy.
5. Demand for Physicians/Hospital Services - this is the biggest question. Will this financial mess impact volume at all? I've heard some mention that in areas with a lot of recent layoffs, the newly unemployed get the care they need to take advantage of the COBRA benefits. At the same time, patients will delay or relent on the elective surgery they once considered. And more importantly, many of these folks will end up moving out of town to pursue other opportunities.
6. Philanthropy? - Corporate and individual donors. Down the tubes?
Just like the real estate market, we can read all about the national news, but the real dynamics are all localized. It'll all depend on what drives your local economy, what drives local lifestyle choices, and what market dynamics/competition exist.
I would be curious to hear from folks if anyone has taken action (personal or at your hospital) related to this financial mess. Personally, I'm trying to find some cheap stocks (GOOG, AAPL?) to buy and hold for a few years.
Comments:
I work for a consulting group and I wonder if the current financial weather will prove to bear more fruit for our services (need to improve operations/cost savings) or if it will decline our demand for the same reason.
On one hand Hospital Executives must tighten operations and make each dollar stretch farther (I believe this is what Mike H. was referring to) but on the other hand, consulting services are expensive and hospitals that are operating at a mediocre level may not opt to make the investment to improve operations during the current turbulence.
The financial market combined with the ever updating regulatory arena proves to create extremely high hurdles for hospital executives to sustain.