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Some hospitals struggle as borrowing gets more expensive

Elizabeth Trovall May 8, 2023
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“Wages and labor pressures are increasing in hospitals unless they're able to find ways to cut back on staff or cut other expenses," said Krutika Amin of KFF. Brandon Bell/Getty Images

Some hospitals struggle as borrowing gets more expensive

Elizabeth Trovall May 8, 2023
Heard on:
“Wages and labor pressures are increasing in hospitals unless they're able to find ways to cut back on staff or cut other expenses," said Krutika Amin of KFF. Brandon Bell/Getty Images
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For hospitals big and small, the cost of keeping their doors open is up. That’s happening as the Federal Reserve recently approved its 10th interest rate increase in a little more than a year. Those hikes are taking a toll on cash-strapped rural and midsize hospitals as borrowing becomes more expensive. 

“Wages and labor pressures are increasing in hospitals unless they’re able to find ways to cut back on staff or cut other expenses,” said Krutika Amin with health policy nonprofit KFF.

John Budd has heard a lot about increased operational costs. He’s with ECG Management Consultants and helps rural hospitals manage their budgets. 

“Even medical supplies are up about 13% when you look at where they were last year,” he said.

That’s one squeeze on hospitals. Another? As the Fed increases interest rates, so does the cost of borrowing money. 

“When you think about the ongoing capital needs of ‘We need a new MRI,’ or ‘We need a new building,’ or ‘We need some type of replacement or expansion,’ obviously, that raises the cost that the health system is going to have to pay for that,” Budd explained.

This hurts some hospitals more than others.

“Larger ones … they have plenty of cash reserves to build whatever they want,” said Vivian Ho, an economist with Rice University.

But for smaller and rural hospitals that have to borrow to cover expenses or expand, “the higher interest rates are going to be very difficult for them to manage,” Ho said.

Also, it’s harder to hire in rural areas. These hospitals often serve an aging, less healthy population, with more folks on Medicaid or Medicare, which is less lucrative for hospitals. 

And when you throw in higher interest rates, “they’re gonna see an acceleration of cash burn,” Budd, the consultant, said. “We’re seeing that in our client base right now. And for many of those, that means even in some instances risking closure.”

So, while well-resourced hospitals can outlast higher interest rates, Budd said some smaller hospitals may not have the time to wait it out. 

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