Hospitals ill from bad debt, credit troubles

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Hospitals ill from more bad debt, credit troubles

By A. , Ap Business Writer – Sat Dec 27, 9:31 pm ET

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 over 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 — not paying their

bills.

All that has begun to trigger more hospital closings — from

impoverished Newark, N.J., to wealthy Beverly Hills, Calif. — as well

as layoffs, other cost-cutting and scrapping or delaying 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. But those patients 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.

" Looking forward, the cost of borrowing will likely be higher — and

may be nonexistent for lower-rated hospitals, " Moody's noted, a

problem because hospitals borrow for everything from expansions and

equipment to payroll and supplies.

Since October, there's been " a dramatic slowdown " in plans for new

wings and building upgrades, with many delayed indefinitely, said

Keckley of the Deloitte Center for Health Solutions.

" It probably means we won't have as many new things in the hospital, "

he predicted.

Tim Goldfarb, CEO of Gainesville-based Shands Healthcare, said his

system, Florida's second-largest provider of charity care, this year

has seen bad debt jump 20 percent 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 believes closing Shands AGH will save nearly $100 million

over seven years, mainly by avoiding costly renovations, but some

administrative jobs will go.

Around the country, while some hospitals still are doing well,

closings and bankruptcies seem to be picking up.

In New Jersey, where 47 percent of hospitals posted losses in 2007,

five of the 79 acute-care hospitals closed this year, and a sixth may

close soon. In Hawaii, nearly every hospital is in trouble, with two

filing for bankruptcy and one nearly closing recently.

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 equal fewer

patients with commercial insurance. The system expects a $22 million

loss, its first in at least 40 years, Killian said.

So Beaumont this fall announced a $60 million restructuring program

that includes 4-10 percent pay cuts for doctors and managers, reducing

overtime for some employees and eliminating 500 jobs, 200 already

vacant, mostly outside of patient care. 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.

An industry database on more than 550 hospitals found their

third-quarter investment results amounted to a combined loss of $832

million, down from a $396 million gain a year earlier. During the

quarter, those hospitals paid 15 percent more in borrowing costs and

swung to a 1.6 percent average loss, 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, " said Mike Rock, a

lobbyist at AHA, which is seeking increased federal reimbursements

from Medicaid and Medicare.

At Exempla Healthcare, with three hospitals in Denver and its suburbs,

Chief Executive Jeff Selberg said there's usually a 5-7 percent annual

profit margin, but this year investment losses wiped that out. He's

scaled back a $200 million plan to upgrade facilities, information

technology and clinical equipment and may halt construction of a new

maternity unit and operating rooms at one hospital.

Selberg has seen a slight increase in bad debt and expects more problems.

" 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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