Can a better economy prop up compromised health systems?

Well, at long last, the hospital sector is beginning to look healthier. Health systems are putting their massive 2008 investment losses behind them, construction is slowly beginning again and some are even on a hiring binge (see today's story on the Cleveland Clinic).

That said, there's a lot of wreckage still floating around, and many systems are still healing from near-fatal wounds. Banks are still incredibly cautious about lending, and their terms aren't so great. What's more, while the bond market has stabilized, it's not exactly friendly either.

As if that weren't enough, joblessness is still at catastrophic levels, and that may not turn around for a year or two if you believe the pessimists.

Hospitals, of course, are directly vulnerable to the cost of caring for unemployed, uninsured people, and can do little to change the mix they've got. The Cleveland Clinic may be able to expand to Abu Dhabi, but most community healthcare organizations are lucky to build a satellite a few miles away.

So, after depressing the heck out of you, you're thinking, hey, give us a break! Are you just going to preach gloom and doom? Well, not exactly.

Consider the logic of Soleil Securities, which just upgraded Tenet Healthcare stock from "hold" to "buy," noting that it based the rating in part on higher confidence in the hospital business as a whole. In its recent ratings announcement, it noted that for the first time, all of the hospital stocks it follows have outperformed consensus expectations on earnings-per-share, revenue and EBITDA. Moreover, Tenet itself saw a 5.7 percent growth in net operating revenue for Q3 '09.

Admittedly, big chains with economies of scale are likely to recover before smaller community hospitals with fewer resources, but I wouldn't discard the fact that the bigger chains are getting healthier. The question, though, is whether smaller companies can hold out long enough to see their (presumably slower) recovery through. What do you think will distinguish the community hospitals that will make it through the post-recession slump in one piece? - Anne