Hospitals Outlook

September 27, 2010 at 6:48 am Leave a comment

The US hospital industry includes about 6,500 hospitals with combined annual revenue of about $700 billion. Major companies include Kaiser Permanente, HCA (Hospital Corporation of America), Ascension Health, Tenet Healthcare, and Catholic Health Initiatives. The industry is fragmenrtd: the top 50 organizations generate less than 30 percent of revenue.
Hospitals provide inpatient and outpatient services using specialized equipment. This industry doesn’t include residential care facilities, outpatient care centers, or doctors’ offices.
Demand for hospital services is driven by demographics and advances in medical care and technology. The profitability of individual companies depends on efficient operations, since many hospitals offer similar services, and customer perception, since in many cities hospitals compete for patients. Hospitals also compete for physicians, and seek to attract doctors with state-of-the-art equipment and an attractive work environment. Large companies have advantages in buying supplies, sharing best practices, and negotiating contracts with health insurers. Large hospitals may offer a wider variety of services. Small hospitals can compete successfully by serving a limited geographical area or offering specialized services. Hospitals are labor-intensive: annual revenue per employee is around $125,000.

Business Trends
Consolidation – Cost and revenue pressures have caused many hospitals, both non- and for-profit, to merge with competing institutions to provide more cost-effective care. After mergers, hospital administrators often eliminate duplicate services, administrative costs, and excess beds; adopt “best practices;” and improve purchasing efficiencies.
Healthcare IT – Healthcare IT is the most pressing technology issue facing hospitals. Developing electronic patient records is a priority for many companies. Government regulations and incentives are also pushing hospitals to come up with electronic patient records that protect privacy while allowing doctors and hospitals to transfer healthcare information and prevent insurance fraud.
Reduced Patient Hospital Stay – In response to cost and revenue pressures, the medical industry has reduced the average hospital stay from seven days in 1980 to 4.6 in 2007. Surgical patients who can be treated and released quickly are more profitable for hospitals than medical cases that involve lengthy hospital stays.
Medical Tourism – US hospitals face competition from medical providers in other nations. Hospitals in Singapore, India, and Mexico are marketing routine medical procedures, elective surgery, and cancer treatment to American “tourists” who want to avoid the high cost of US healthcare. According to the India Tourism Department, medical tourism in India grows at a 25 percent annual rate and is expected to exceed $2 billion by 2012.
Growth of Outpatient Services – Outpatient services comprise a growing portion of hospital revenue, up to 40 percent industrywide. Since patients are sent home after surgery or other procedures, outpatient care is less expensive than inpatient care. Hospitals and managed care organizations see outpatient care as a way to cut costs while still providing quality care.
Physician-owned Hospitals – Physician-owned hospitals are a growing segment of the hospital industry. In 2009, there were around 235 such hospitals, with more than 100 other facilities in development. The majority of physician-owned hospitals are a joint venture with a for-profit or nonprofit hospital operator, but a few are 100 percent owned by doctors. Proponents say that physician-owned hospitals offer better patient care because doctors understand what patients need; critics say doctors with a financial stake in a hospital may order more expensive tests or procedures to boost revenues.

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