Gainesville, Florida’s first community hospital has been struggling since it was acquired by the Shands Healthcare system in northern Florida twelve years ago. But now the plug is being pulled from the 80-year-old, money-losing Shands AGH because of the recession.
Its eight-hospital not-for-profit parent company will close the 220-bed hospital next fall. Patients and staff will be moved to a nearby newer, larger teaching hospital as part of an effort to conserve $65 million over three years throughout the healthcare system.
Like many U.S. hospitals, Shands is being hit by higher borrowing costs, tight credit, investment losses and a spike in non-paying patients, many of which are recently unemployed or otherwise underinsured.
These factors have conspired to trigger more hospital closings, layoffs and other cost-cutting measures along with the abandonment or delay of many new building projects.
Experts say more closings and mergers are on the way.
“They’ll get swallowed up by somebody else, if they need to exist, and if they don’t, they’ll just close,” Tuck Crocker, vice president of BearingPoint’s healthcare practice, told the Associated Press.
Those most at risk include rural hospitals and urban healthcare facilities in areas with excess hospital beds and many poor, uninsured patients.
Hospitals are reporting a sharp decrease in donations and investment returns, while patient visits are flat. Meanwhile, profitable diagnostic procedures and elective surgeries are on the decline as those with inadequate insurance put off healthcare. Eventually, however, these patients turn up at emergency rooms, often seriously ill, making it difficult for hospitals to lay off staff.
These problems are magnifying many long-standing stresses, such as low reimbursements from insurance companies, even-lower payments that typically don’t cover costs for Medicare and Medicaid patients, and high technology and labor costs.
Industry consultants and hospital executives say the increasing number of people with high-deductible health plans is driving up unpaid patient bills. Many are concerned that health reform efforts by the Obama administration could mean cuts in Medicare reimbursements. Indeed, many states short on cash have already started reducing payments for poor people covered by Medicaid.
Patients and insurers, who have been paying hospital bills more slowly during the past few months, have been complicating matters further. As a result, some think hospitals will begin requiring up-front payments for elective procedures.
Citing “prospects of a protracted recession,” bad debt and the credit crunch, Moody’s Investors Service changed its 12- to 18-month outlook from “stable” to “negative” in November for nonprofit and for-profit hospitals.
“Looking forward, the cost of borrowing will likely be higher – and may be nonexistent for lower-rated hospitals,” Moody’s said. This is problematic because hospitals typically borrow for everything from payroll and supplies to expansions and equipment.
Paul Keckley of the Deloitte Center for Health Solutions said he’s seen a “dramatic slowdown” in plans for new building projects since October.
“It probably means we won’t have as many new things in the hospital,” he told the AP.
Tim Goldfarb, CEO of Gainesville-based Shands Healthcare, Florida’s second-largest provider of charity care, said his system has seen bad debt jump 20 percent this year from uninsured patients.
“We write them off,” Goldfarb said.
“It’s a burden that we cannot carry any longer.”
Florida began reducing Medicaid reimbursements two years ago when its economy started to slow, Goldfarb added. He worries about another significant cut next year.
Shands already has delayed variable-rate bonds to avoid higher interest rates, deferred nearly $25 million in equipment purchases, moved management meetings to church halls and enacted employee suggestions to save millions more.
Goldfarb believes closing Shands AGH will result in nearly $100 million in cost savings over seven years, primarily by avoiding expensive renovations. However, some administrative jobs will go away.
Although some hospitals still are doing well, closings and bankruptcies appear to be accelerating throughout the nation.
In New Jersey, for instance, where 47 percent of hospitals lost money last year, five of the 79 acute-care hospitals closed this year, and a sixth may close soon. And nearly every hospital is struggling in Hawaii, with two filing for bankruptcy and one nearly closing recently.
Throughout the country hospitals are reducing costs by outsourcing services such as security and housekeeping and cutting staff through attrition, layoffs and hiring freezes.
Most are trying not to affect those jobs that directly affect patient care, such as nurses, therapists, pharmacists and X-ray technicians. Many of these positions already have staff shortages.
“The last thing we can do is skinny down our staffing right where we need it the most,” Mike Killian, vice president of marketing for the three Beaumont Hospitals in suburban Detroit, told the Associated Press.
In Detroit, job losses from the auto industry and other factors now mean fewer patients with commercial insurance. The system now predicts a $22 million loss, its first in at least four decades according to Killian.
As a result, this fall Beaumont announced a $60 million restructuring program, including a 4-10 percent pay reduction for doctors and managers, reduced overtime for some employees and the elimination of 500 jobs.
Some of the hardest-hit hospitals started cutting staff and services last spring, with more to follow, according to Rich Umbdenstock, CEO of the American Hospital Association.
Umbdenstock expects that some facilities would eliminate services that lose money, such as behavioral health treatment, or those with high operating costs such as burn units, instead of making broad-based cuts across their entire operation.
An association survey of more than 700 hospitals revealed that two-thirds have seen a decline in elective procedures and overall admissions since July, while 50 percent have seen moderate or significant increases in nonpaying patients. Meanwhile, a database on more than 550 hospitals found their third-quarter investment returns amounted to a combined loss of $832 million, a sharp reduction from last year’s $396 million gain.
Additionally, those hospitals paid 15 percent more in borrowing costs during the quarter, swinging to a 1.6 percent average loss, down from an average 6.1 percent profit margin a year ago.
“They’re having serious problems getting the capital they need for needed renovations and upgrading their facilities,” Mike Rock, an AHA lobbyist, told the AP.
The AHA is currently seeking increased federal reimbursements from both Medicare and Medicaid.
At Exempla Healthcare, which has three hospitals in Denver and its surrounding suburbs, CEO Jeff Selberg said there’s typically a 5-7 percent annual profit margin. However, this year’s investment losses wiped that out. He’s now reduced a $200 million plan to upgrade facilities, information technology and clinical equipment and may stop the building of a new maternity unit and operating rooms at one of the hospitals.
Selberg said he’s seen a small increase in bad debt, but predicts more problems ahead.
“We feel like the wave is coming, but it hasn’t hit yet, and we don’t know how big this wave is going to be,” he said.
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