Tennessee Hospitals Handling the Economy with Caution, Not Panic on Nashville Medical News

Tennessee Hospitals Handling the Economy with Caution, Not Panic

By: SHARON H. FITZGERALD

In today's challenging economy, Tennessee hospitals are tightening their belts and slowing capital investments, but operations are holding steady.

"Hospitals are starting to hold onto cash a whole lot more than they were before, and I think they're just waiting," said Craig Becker, president of the Tennessee Hospital Association. An informal survey of its members by the THA revealed that, while bad debt is rising at some facilities, most administrators "believe things will improve once election uncertainty is over," he said. "But I think the next year is going to be a tough year for a lot of hospitals, and they're just very leery of spending any money at this point. ... That probably means they are putting off purchasing some high-tech gear."

For Vanderbilt University's hospitals and clinics in Middle Tennessee, that means no purchases of new equipment for new services. Yet replacement equipment is another story. "That's very embedded in our operations, and that's needed to carry on business day to day," said Warren Beck, vice president of finance for clinical enterprise at Vanderbilt. "I think that we will have tighter scrutiny as we evaluate how to use our reserves."

Marvin Eichorn, senior vice president and chief financial officer for Mountain States Health Alliance in Johnson City, said the combination of high gas prices and the credit crunch are increasing the number of self-pay patients and charity-care cases. "At this juncture, we're just trying to be very, very cautious about all of our expenditures, not just our capital, but even day-to-day operating expenses," he said.

Unlike retail and other commercial sectors, healthcare isn't immediately impacted when the economy spirals downward, Eichorn noted. "There's a delayed impact. When people lose their jobs, generally they have some sort of C.O.B.R.A., so a lot of times, you won't see the effect for six to nine months down the road," he said. He acknowledged, however, that the system's bad debt is creeping up. "And frankly it's probably more than a creep," he said.

Mountain States' bad-debt expense rose nearly 40 percent from fiscal year 2007 to fiscal year 2008, but new hospitals added to the network's mix contributed to most of that increase. Charity care is up 60 percent for the same time period, he added.

Yet both Eichorn and Beck said personnel layoffs aren't in the offing. "For us, that's not even a thought," Beck said. "We're very, very busy providing healthcare, and we feel like our operations are very strong."

Nationwide, hospitals have been impacted by losses in stock values and the tightening credit market, and Tennessee is no exception. "Everyone has lost quite a bit of value on their investments, and because we have lost that value, I think in the short term we will most likely do some deferrals of our capital plans," Vanderbilt's Beck said.

In November 2007, Vanderbilt Children's Hospital announced a $203 million eight-story addition, with a groundbreaking set for 2009. Asked if the expansion's timetable could be affected by the dismal economy, Beck said, "To tell you the truth, we don't know the answer to that yet." Early preparations include vacating the Dayani Center for Health and Wellness and relocating those employees to the renovated 100 Oaks facility. Then Dayani will be demolished to make way for the Children's Hospital addition, with digging a next step to build underground parking. "I'm guessing that we will continue with the plans for demolition and most likely the parking," Beck said.

"I think the big thing that we'll be evaluating is that we know, because of what's happened in the markets, that for many people who were going to be part of our philanthropy effort, it will be more difficult to raise that money in the short term. Most people will not want to liquidate their investments while they are at such a low price. Nationally there's been a lot of discussion in the healthcare industry that one would expect that philanthropy for a period is going to be more difficult to acquire, and I'm sure we'll experience the same thing in our efforts with the Children's Hospital."

Mountain States, with 14 hospitals and a number of clinics and outpatient settings, is in the throes of its purchase of Johnson Memorial Hospital in Abington, Va. The system had planned to go to the bond market in November, yet at press time, a final decision had not been made, Eichorn said.

As for investment losses, Eichorn said Mountain States, like most investors, has taken a hit. Because the system isn't publicly traded, cash reserves are a necessity.

"We do have a healthy amount of cash investments, and of the amount we have, roughly 30 percent is in the stock market, either in the domestic U.S. market or a small percentage in international stocks. Certainly, over the last year, the value of those investments has gone down, and obviously in the last 60 days, it's gone down a lot," he said. The investment committee of the system's board of directors has been meeting frequently, and "their view has been let's ride this out," he added.

"Business still continues to be very good. We're right on budget through the first quarter of the year. We're cautious, but we're still optimistic." In fact, he continued, the network was set to give employees their annual incentive payment in November for exceeding budget expectations and accomplishing "blueprint goals."

With the election settled, Beck said he believed the economists and pundits would soon have a better understanding of what the economic policies will be.

"I think that will actually have the impact of stabilizing the markets, which is really what's driving so much of everybody's uncertainty. I'm hopeful that within 12 months we will start to have an economy that is beginning to grow again," Beck concluded.