Dominant player in their field. Consolidation has allowed hospital chains to gain power in negotiating contracts with insurance companies, suppliers and labor. Demographics favor the industry as being a growth area as we get older.
Risks:
-Each hospital is independently run so there is a risk in accounting issues that upper management wouldn't know about (medical billing). Indeed they were fined years ago when they were known as NME for incorrect medicare billing and have since instituted an ethics program and are pretty careful (as can be) with billing. Haven't heard of any problems since then (probably over 10 years ago, off the top of my head).
-Rising labor costs. Currently not a high rate of union membership in this industry but that may someday change and there are areas that have unions. Even if there isn't a wage issue, sometimes it's difficult to recruit enough staff and the hospitals are forced to use registries (more expensive than regular staff) or at the other end of the spectrum.... have to keep minimum staffing even if there aren't enough patients to pay off. That's the way it goes in the industry. Tends to even out over time with other days having inadequate staffing (lol.... not on purpose... just because no staff was available or a sudden unexpected inflow of patients pushed the patient/staff ratio up).
-Government intervention requiring lower patient/staff ratios. This would be hard to legislate but could be instituted through JCAH "standards".
-Rising liability costs. Hospitals generally have liability insurance covering their staff. Premiums have a habit of rising.
-Reduced Medicare reimbursement which would quickly be followed by insurance companies and hmo's cutting reimbursement since some of the big carriers base their rates on government reimbursement. Already docs have had their reimbursement cut this year as well as skilled nursing facilities. I suspect that after the elections there will be an attempt to cut acute care facility reimbursements. Whether this will happen or be sucessful is anyone's guess. THC is much stronger now that most of the little independents have been forced to consolidate or close shop.
-Rising supplier costs. Probably not an issue.
-Rising costs to renovate older institutions as time goes on.
-Government stepping in on an antitrust issue. (THC of course isn't a monopoly since there are other hospitals, but they can use their power against drug companies, other suppliers, insurance carriers). Who knows if the government ever moves in on this industry, but there were recent rumors of it a week or two ago.
I would say that the biggest risk is reduced reimbursement.
Oh, btw.... there is a barrier to entry. You cannot just go out and build a hospital. First off it's too expensive and second there has to be a "need". Therefore.... if there aren't many institutions around, and most are owned by THC (or another chain, but thc is the biggest), where else are patients going to go? They'll go where their insurance carrier pays and that favors those who can give them the best contracts. That happens to be the big chains since they pressure their suppliers for price breaks. Were it not for the consolidation that we've seen, many institutions would be out of biz.
I'm not sure how much of an issue options are. Last I knew, regular staff weren't granted options but upper management is. There is an employee stock purchase program so there is some dilution from that (course.... nurses don't tend to be really biz minded and overall I would say most don't take advantage of the program).
To sum it up: THC is the Walmart of hospitals.
TA |
