The FINANCIAL — Facing rapidly rising costs, a third (33 percent) of European hospitals are reporting operating losses, generating negative earnings after tax, according to a new nine-country study released by Accenture, a global management consulting, technology services and outsourcing company.
Accenture‘s European Hospital Rating Report includes an in-depth review of the 2011 financial statements of more than 1,500 hospitals in nine countries: Austria, Belgium, France, Germany, Italy, Norway, Portugal, Spain and Switzerland.
The study assessed three factors: hospitals’ creditworthiness, the probability of defaulting on financial commitments and operating profitability. Accenture determined the proportion of hospitals, in each country, with a “low, increased or high risk of default,” and found that nearly half (46 percent) of the European hospitals studied are potentially at risk of defaulting on their financial commitments, such as paying vendors for hospital services, according to Accenture.
“Many hospitals are placing a high level of financial strain on their national health system, which is unsustainable for the future,” said Kiryakos Chebel, managing director of Accenture’s Health business in France. “Hospitals need to be as vigilant as commercial enterprises in managing their finances to ensure the stability of their clinical practice,” Chebel added.
The research also shows nearly half (46 percent) of French hospitals are considered to be “low risk,” in terms of their probability of default, as they can meet their financial commitments, but a quarter were rated as “high risk”, according to Accenture. Still, this compares favorably to the proportion of hospitals in Portugal (59 percent) and Norway (41 percent) that could face a “high risk” of default.
Beyond an institution’s ability to meet its financial commitments, hospitals with a higher-earnings margin are able to fund investments through their operating cash flow. While France had the second highest operating profitability of the countries studied, averaging an EBITDA margin of 10.7 percent, roughly half of its hospitals still had some risk of default, suggesting they could have insufficient cash flows to cover deficits. In contrast, Italy reported the highest operating profitability overall, generating an EBITDA margin of 12.1 percent, or nearly four times the level of neighboring Switzerland. And, although 48 percent of Italian hospitals face some degree of financial risk, only 16 percent are considered “high risk”, according to Accenture.
“If the financial management of French hospitals remains unaddressed, citizens within the same country could face significantly different standards of care over time or even see local hospitals having to close. We still have time to prevent a troubling situation from becoming a crisis, but hospitals must establish business models that will secure a firm financial footing for the future,” Chebel said.
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