Business World

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, the plug is being pulled on 80-year-old Shands AGH. Next fall, its nonprofit parent company will shut the 220-bed hospital and shift staff and patients to a newer 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 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 and scrapping or delaying building projects.

More closings and mergers are on the way, industry analysts 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 lots of poor, uninsured patients. Hospitals, which employ 5 million people, are reporting 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.

In the St. Louis area, no hospitals have shuttered recently, although earlier this year Kenneth Hall Regional Hospital in East St. Louis closed its trauma unit and reduced its services to just an emergency room and some mental health care. At least two local hospitals, Forest Park and St. Louis University, operated at a loss in 2006, the latest year financial figures are available from the state.

Meanwhile, some area hospitals already have begun to make staff reductions.

RELATED LINKS

 Get more business news, blogs and opinion

SSM Healthcare-St. Louis, which operates seven local hospitals, cut about 200 jobs in the last year. Some of the cuts, including about 45 positions at SSM’s St. Mary’s Health Center in Richmond Heights and 25 at its DePaul Health Center in Bridgeton, came as a result of the hospitals seeing fewer patients than expected. Missouri Baptist Medical Center in Town and Country, a member of the BJC HealthCare system, announced layoffs of about 40 people in June following similar declines in patient visits.

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 cash advance.

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

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.

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. In Hawaii, nearly every hospital is in trouble, with two filing for bankruptcy.

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 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.

Rich Umbdenstock, chief executive of the American Hospital Association, said some of the hardest-hit hospitals began reducing staffing and services last spring. He expects some to eliminate services — such as behavioral health treatment, or burn units — rather than weaken their entire operation.

Meanwhile, an industry database of 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.

"They’re having serious problems getting the capital they need for needed renovations and upgrading their facilities," said Mike Rock, a lobbyist at AHA.

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.

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," he said, "and we don’t know how big this wave is going to be."

BLYTHE BERNHARD OF THE POST-DISPATCH CONTRIBUTED TO THIS REPORT.

Source