Healthcare Facilities and
Providers
QUARTERLY
Quarterly Hospital Survey
Credit Suisse Quarterly Hospital Survey: We surveyed 138 hospital executives
on 4Q08 operating trends and asked for their outlook for 2009. In this report we
discuss our key finding around some of the primary issues impacting the hospital
group and provide a full appendix of charts that covers wide-ranging topics including
hospital capex trends, healthcare IT, managed care, and legislation.
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Bottom Line: Based on our hospital survey, 4Q showed deteriorating operating
trends as a deceleration in volume, unfavorable mix shift, and rising bad debt
pressured results. Responses for the 2009 outlook proved more mixed with
surprisingly higher volume expectations but also higher bad debt and margin
pressures. Given the results of our survey we thought it prudent to reassess our
models for the hospital group and have taken more conservative stance on both
volume and bad debt trends in 2009. Please see our note titled “Lowering
Estimates on Heels of Hospital Survey” for more details on our revisions.
Survey Takeaways:
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1) Volume Slightly Negative While Payor Quality Deteriorates: On average
admissions declined 0.2% but perhaps more telling was that 53% of respondents
reported flat or negative admissions vs. 34% in 3Q. Beyond the volume
pressures it appears that payor mix deteriorated as managed care mix fell while
uninsured payor mix grew (uninsured admits +4%).
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2) Bad Debt Remains on the Rise: Bad debt increased for the majority of
respondents in 4Q as 59% of respondents said it “increased slightly” and another
22% responded that bad debt “increased significantly”. We note that only 15%
stated bad debt remained stable or declined.
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3) 4Q Financial Performance Below Budget: Financial performance was
“below budget” for 61% of survey respondents, compared to 40% that said the
same in our 3Q08 survey. Weaker than expected admissions, decelerating
pricing/mix, and higher bad debt expense were cited as the primary reasons for
driving financial performance below budget.
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4) Majority Expect Positive Volume in 2009: One of the more surprising
findings was how optimistic hospital executives were around expected volume
trends in 2009. Roughly 53% of those surveyed expect over 1% volume growth
in 2009, 18% expect flat to +1% growth, while 28% expect admissions to decline.
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5) Effects of Weak Economy Likely to Impact 2009: The weak economic
backdrop will likely lead to greater deterioration in payor mix during 2009 based
on our survey. Results show an expected shift toward Medicaid and the
uninsured and away from more the more profitable managed care category.
Beyond payor mix, 82% of respondents expect bad debt to be up in 2009 with
the greatest majority (42.8%) expecting a 0-50bps increase as a percentage of
revenue. These issues are expected to pressure margins as 47% of respondents
expect EBITDA margin contraction in 2009, 19% expect it to remain flat, and
26% expect margins to expand.

Takeaway #1
Volume Down Slightly; Payor Quality Deteriorates
On average 4Q admissions declined 0.2% based on our survey results. Perhaps more
telling was that 53% of respondents reported flat or negative admissions compare to 34%
in 3Q. Nearly 47% of respondents experienced positive admission growth in 4Q08 (Exhibit
1). While other surveys may have suggesting a more pronounced decline, there are many
considerations to take into account including whether trends reported are monthly versus
quarterly, whether results are confined to certain regions or territories, and whether correct
adjustments are made for comparable days in a month along with holiday considerations.
It is important to understand that there are no national hospital providers and therefore we
can see wide variations in results from state to state, county to county and even market to
market. Nonetheless, we believe results an prove telling on general volume trends.
A further breakdown of volume shows that uninsured admissions increased roughly 4% on
average while elective procedures (-1.6%) and inpatient surgeries (-0.4%) declined
(Exhibit 2). The increase in uninsured patients and decline in elective procedures likely
contributed to a deteriorating payor mix seen in 4Q (Exhibit 3). Survey results showed the
average percentage of managed care patients declined 120 basis points year-over-year,
while self-pay and Medicaid increased 70 and 60 basis points, respectively. This likely
reflects the challenging economic times and particularly higher levels of unemployment.

Takeaway #2
Bad Debt Remains on the Rise
It should come as no surprise that bad debt trends continue to rise given an increasing
uninsured/under-insured population. According to our survey, 59% of respondents said
bad debt “increased slightly” and another 22% responded that bad debt “increased significantly”
in 4Q. We note that only 15% stated bad debt remained stable or declined (Exhibit 4). We
view bad debt as the single biggest challenge facing the hospital group in 2009 as higher
levels of unemployment drivers greater uninsured. Moreover, higher out of pocket costs
may also be contributing to the rising bad debt trends as collection rates weaken given the
macro economic challenges. That being said, we asked about collection rates in 4Q and
got a fairly even mix of responses with 31% saying collections were better, 38% saying no
change, and 24% citing worsening of collections (Exhibit 5).