Bad debt triggers hospital closings around U.S.

updated 2:11 p.m. ET Dec. 28, 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 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.

Endangered hospitals
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.

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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.

‘Prospects of a protracted recession’
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 Paul 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."

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