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Health Industry Looking Ill

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The Associated Press

The Tampa Tribune

Published: December 29, 2008

TRENTON, N.J. - Gainesville's first community hospital has been on life support since the Shands Healthcare system in northern Florida bought it a dozen years ago.

Now, because of the recession, the plug is being pulled on 80-year-old, money-losing Shands AGH. Next fall, its eight-hospital not-for-profit parent company will shut the 220-bed hospital and shift staff and patients to a newer, bigger teaching hospital nearby as part of an effort to save $65 million during three years across the system.

Like many U.S. hospitals, Shands is being squeezed by tight credit, higher borrowing costs, investment losses and a jump in patients - many recently unemployed or otherwise underinsured - who aren't paying their bills.

All that has begun to trigger more closings - from impoverished Newark, N.J., to wealthy Beverly Hills, Calif. - as well as layoffs, other cost-cutting and the scrapping or delaying of building projects.

More closings and mergers are on the way, industry consultants predict.

"They'll get swallowed up by somebody else, if they need to exist, and if they don't, they'll just close," said Tuck Crocker, vice president of the health care practice at management consultant BearingPoint.

Most endangered are rural hospitals and urban ones in areas with excess hospital beds and a lot of poor, uninsured patients.

Hospitals, which employ 5 million people, are reporting that donations and investment returns are down, patient visits are flat and profitable diagnostic procedures and elective surgeries are declining as people with inadequate insurance delay care. Those same patients, however, are turning up later at ERs, seriously ill, making it tough for hospitals to lay off nurses and doctors.

All those problems are aggravating long-standing stresses: stingy reimbursements from commercial insurers, even-lower payments that generally don't cover costs for Medicare and Medicaid patients, and high labor and technology costs.
Hospital executives and consultants say the growing number of people with high-deductible health plans is boosting unpaid patient bills. Many worry health reform efforts by the Obama administration could bring cuts in Medicare reimbursements, and many cash-strapped states already have begun cutting payments for poor people covered by Medicaid.

In the past few months, patients and insurers have been paying hospital bills more slowly. As a result, some think hospitals will start demanding up-front payments for elective procedures.

In November, Moody's Investors Service changed its 12- to 18-month outlook from "stable" to "negative" for nonprofit and for-profit hospitals, citing "prospects of a protracted recession," bad debt and the credit crunch.

Tim Goldfarb, CEO of Gainesville-based Shands Healthcare, said his system, Florida's second-largest provider of charity care, has seen bad debt jump 20 percent this year from patients with no insurance.

"We write them off," Goldfarb said. "It's a burden that we cannot carry any longer."

Florida started cutting Medicaid reimbursements two years ago, when its economy started to slow, Goldfarb said. He fears another huge cut next year.

Shands already has paid off variable-rate bonds to avoid higher interest rates, deferred roughly $25 million in equipment purchases, shifted management meetings to church halls and adopted employee suggestions to save millions more.

Goldfarb thinks closing Shands AGH will save nearly $100 million over seven years, mainly by avoiding costly renovations, but some administrative jobs will go.

All over, hospitals are cutting costs by outsourcing services like housekeeping and security, and trimming staff through layoffs, hiring freezes and attrition. Most are trying not to touch patient care jobs - nurses, pharmacists, therapists and X-ray technicians - as those already have staff shortages.

"The last thing we can do is skinny down our staffing right where we need it the most," said Mike Killian, marketing vice president for the three Beaumont Hospitals in suburban Detroit.

There, auto industry job losses and other factors now mean fewer patients have commercial insurance. The system expects a $22 million loss, its first in at least 40 years, Killian said.

Rich Umbdenstock, chief executive of the American Hospital Association, said some of the hardest-hit hospitals began reducing staffing and services as early as last spring, and more will follow. He expects some to eliminate services - money-losers such as behavioral health treatment, or those with high operating costs such as burn units - rather than weaken their entire operation.

An association survey of more than 700 hospitals found two-thirds have seen elective procedures and overall admissions fall since July, and half have seen moderate or significant jumps in nonpaying patients.

FACING PRESSURE

U.S. hospitals are beset by financial pressures from all sides. Issues cited by hospital executives, industry consultants and other experts include:

•More patients aren't paying their bills or are taking longer to do so. Reasons include increases in people who are unemployed and have lost their health insurance, employers increasing workers' co-payments and premiums, and more people getting insurance plans that carry very high deductibles.

•More patients are putting off treatment until illnesses are very serious, then showing up at emergency departments, unable to pay.

•Patients are delaying diagnostic procedures and elective surgery such as joint replacements, which generally are moneymakers.

•Overall admissions are down at many hospitals, also cutting revenue.

•Government subsidies for uncompensated, or charity, care have been cut in some states because of their budget problems, and some states are starting to or are expected to cut reimbursements for Medicaid programs, typically one of their biggest budget items.

•Credit has become tighter, which, at best, increases borrowing costs and in some cases leaves hospitals unable to borrow in some cases.

•Hospital endowments and other funds invested for later use have been hurt by the stock market's plunge, with many hospitals seeing considerable losses.

•Wealthy hospital patrons, some of whom also have suffered big investment losses, have started cutting back on donations.

•Many individual doctors and small group practices are pressuring hospitals with which they are affiliated to buy their practices because they can't afford expensive technology upgrades, particularly computerized patient record systems.

Source: American Hospital Association

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