Real Reality: Many Hospitals are Teetering on Insolvency

No one would blame you for believing that hospitals are looking for rental storage units to store all of their excess cash after reading the April 4 article in the Wall Street Journal.

On the whole, that is not the case according to a study (pdf) reported in the same newspaper. Here’s the gist from the Kaiser Network:

For the study, researchers examined the finances of 3,861 of the 4,900 short-term, acute-care hospitals nationwide and found that 2,044 of the facilities do not make a profit from the treatment of patients. In addition, 744 of the hospitals that do make a profit from the treatment of patients lack adequate funds to make improvements or finance daily operations, according to the study. The study also found that capital expenses for the hospitals are underfunded by $10 billion to $20 billion because the facilities have used those funds to finance daily operations.

This from the WSJ Health Blog:

“Similar to competitive markets in other industries, second and third-tier competitors (small and mid-size urban hospitals) are rapidly losing ground to the dominant medical centers and integrated delivery systems in their service areas,” the report says.

It will be interesting to see where this goes. My assumption is that we will find a way to keep these hospitals in business for the foreseeable future. In many communities, the presence of the local hospital means the difference between community growth and stagnation—or worse. It is very similar to the way rural communities try to hang on to their schools instead of consolidating with area towns. Once the school is lost, the city has trouble sustaining itself. So will we see government help to update the infrastructure at these hospitals? Will we see an extension of the critical access hospital program?

But the other possible path is to let the hospitals try to survive on their own. We’ve seen a hospital close recently, mostly due to a poor payer mix. The pressures are only going to tighten: more uninsured (and now underinsured) patients, lower reimbursements, and rising costs. And it is conceivable to see hospitals close due to a lack of patients. Consider outpatient services (both hospital affiliated and not) continuing to move business away from hospitals. Retail clinics have the ability to diagnose quickly—long before a patient may need to be admitted. New delivery models like concierge medicine and the coming innovation-in-delivery boom could further reduce the need for inpatient beds.

Here is something to consider strongly: Gerald Gline, a bankruptcy attorney at Cole, Schotz, Meisel, Forman & Leonard, said in the WSJ article, “There are just too many hospitals.”

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