More light at the end of the tunnel

As readers know well, the past couple of years have been very rough for providers, who've arguably been hit harder than many U.S. industries by the near-collapse of the economy. But I'm here today to offer some hope. If the view from my desk is any indication, the financial climate for hospitals and medical practices is getting just a bit better, though we aren't in full turnaround mode yet.

My evidence includes the following observations:

* At least for non-profits with strong credit ratings, like Minneapolis-based Allina Health System, it's getting easier for providers to issue reasonably-priced fixed-interest bonds, and dump auction-rate debt. During the past 18 months or so, even AAA rated issuers couldn't catch a break from banks, institutional buyers or investment bankers.

* Layoffs continue, but mass layoffs of 50 employees aren't as common as they were last year, which was one of the worst in the past decade. I predict that when the Bureau of Labor Statistics numbers are crunched for 2009, the layoff rate will be much lower than it was in '08. (OK, given last year's dismal performance, that's not so great. But improvements are improvements.)

* Healthcare reforms seem to be on the verge of passing, and near-universal coverage is expected to be part of the package. While there are always unexpected consequences that turn up after public policies are enacted, the healthcare execs I've spoken with seem optimistic that this will be a net gain for them, especially for hospitals.

* While inpatient volumes are still at risk, outpatient and surgical admissions are picking up for hospital chains like Tenet and HCA. Meanwhile, their revenues are growing and they're producing reasonable levels of revenue and net income. On another arguably positive note, HCA successfully closed a $1.5 billion bond offering this past spring.

Sure, there are lots of things that could wrong. They range from the less plausible (the collapse of a remaining megabank or brokerage) to the predictable (health reform imposing unexpected costs and trouble). And of course, the industry faces the same background problems it always has, ranging from Medicare payment reform to changes in health plan business practices to the ICD-10 changeover.

That being said, I suspect the worst of the worst is over. Yes, it will feel a lot better when the ability to borrow trickles down to smaller hospitals and clinics, patient volumes climb meaningfully and more patients have health coverage. In the meantime, I'd argue, it makes sense to plan for success as well as heartache. At this point, a bit of optimism may actually make sense. - Anne