Hospitals with weaker finances struggle to rebound from recession

The Great Recession had an impact on all hospitals, but those that were on the financial precipice prior to that crisis were left far weaker than those with stronger finances to start, according to a new study.

The study, conducted by researchers at Penn State University and published in the most recent edition of Health Affairs, examined 2,971 hospitals' finances between 2006, the year before the Great Recession began, and 2011, about two years after it officially ended.

"Hospitals recovered from the recession, but those that were initially financially weak before the recession remained in a precarious condition through 2011," Naleef Fareed, assistant professor of health policy and administration at Penn State University, and the study's author, said in an announcement.

The overall effects of the recession were tough on virtually all hospitals' bottom lines. The industry average margin dropped from 6 percent in 2007 to 1.8 percent by the following year, according to the study.

Larger hospitals were hit particularly hard, with nearly 80 percent reporting drops in non-operating income during the recession.

Researchers considered about one-quarter of the hospitals studied--24.6 percent--financially weak before the recession began. That is, they had negative financial margins prior to late 2007. The study classified 62 hospitals as financially strong, and the remainder had "mixed" financials.

The financially weak hospitals were nearly four times as likely as their stronger counterparts to close (15.8 percent versus 4.2 percent) and more likely to merge (18.4 percent versus 12.5 percent). Those hospitals with mixed financials were more than twice as likely to close than those with stronger balance sheets, but less likely than their weaker and stronger counterparts to merge.

Weaker hospitals were also more likely to switch service lines from acute care to long-term care (13.2 percent versus 8.3 percent).

The study concluded that while stronger hospitals' finances rebounded to their pre-recession levels, weaker facilities continue to operate with numbers that are subdued for the long run.

To learn more:
- read the Penn State announcement
- check out the Health Affairs study (purchase required)