Large hospitals have tough time 'turning the battleship' in bad economy

In a story appearing in this week's issue, we noted some data that struck me as a bit odd.  According to the data, which was drawn from research by the Healthcare Financial Management Association,  large hospitals are doing a lot worse than smaller ones on a number of important measures, including negative margins and drops in non-operating income.

These figures seemed a bit odd to me, given that larger institutions don't, for example, necessarily have proportionately higher overhead or worse patient bases from which to draw.

To get some perspective, I asked Steve Davis for help. Davis, a healthcare consultant who's served in leadership roles in a large academic medical center and a large health system, says the data makes complete sense to him.

"Small hospitals have been under a lot of pressure for a long time," he notes. "They had  less work to do on operational side than large hospitals when the downturn hit. They were so much on the edge they had already squeezed out all of the fat."

Larger hospitals, meanwhile, weren't forced to develop the same financial discipline, he says. Larger hospital had earnings from endowments and invested cash, unlike many smaller players. Also, academic medical centers have been getting relatively generous payments from Medicare for medical education and training, he notes.

Then, add the fact that larger hospitals have more complex administrative process, and more department administrations to balance, it just takes larger hospitals longer to make decisions that might help them cope with a recession or other problem.

So, what happens when t he economy rebounds. Will the big hospitals simply become fat cats again, with phat endowments and extra Medicare cash? Will their existing model work?

Davis doubts it. "If they're really efficient when economies turn around you could see an improvement in their position--maybe. But I don't think business as usual is going to work any more." - Anne