Economic Downturn Affects Hospital Projects, Budgets

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The hospital industry is "among those struggling with the credit scarcity that the federal government's latest financial bailout is meant to alleviate," and "lending relief, if it comes, cannot come too soon," the New York Times reports. Hospitals are "not immune" to periods of economic downturn, Richard Clark, CEO of the Healthcare Financial Management Association, said. Clark noted that like all businesses, hospitals rely on credit for building projects and to maintain liquidity.

According to the Times, hospitals for years have spent heavily on new equipment, buildings and renovations. The strategy was made possible by "easy access to credit from banks and bond markets," the Times reports. However, "many hospitals have scaled back their ambitions as they scramble to protect their cash positions," according to the Times. Patrick Smyth, a consultant with Kurt Salmon Associates, said, "Suddenly, the rug is getting yanked out from under them."

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Hospitals -- some of which already have been forced to reduce expenditures -- "worry that if the financial crisis leads to a severe economic downturn, they will feel deep pain," the Times reports. In addition, the U.S. economy is putting further pressure on hospitals because an increasing number of patients either are unable to pay the out-of-pocket portions of their bills or are uninsured.

The resulting "hunkering down" by the industry could have a "ripple effect" on suppliers of medical equipment and the construction industry, according to experts, the Times reports. Experts also warn of negative effects on the labor market because, although hospitals have been "among the bright spots" in labor statistics, hiring has begun to wane (Abelson, New York Times, 10/15).

Reprinted with permission from kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign up for email delivery at kaisernetwork.org/email . The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation. © 2007 Advisory Board Company and Kaiser Family Foundation. All rights reserved.

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