Cash-Poor Governments Ditching Public Hospitals

August 30, 2010

Faced with mounting debt and looming costs from the new federal health care law, many local governments are leaving the hospital business, shedding public facilities that can be the caregiver of last resort, says the Wall Street Journal. 

More than a fifth of the nation's 5,000 hospitals are owned by governments and many are drowning in debt caused by rising health care costs, a spike in uninsured patients, cuts in Medicare and Medicaid and payments on construction bonds sold in fatter times.  Because most public hospitals tend to be solo operations, they don't enjoy the economies of scale, or more generous insurance contracts, which bolster revenue at many larger nonprofit and for-profit systems. 

Local officials also predict an expensive future as new requirements -- for technology, quality accounting and care coordination -- start under the overhaul, which became law in March. 

  • Moody's Investors Service said in April that many standalone hospitals won't have the resources to invest in information technology or manage bundled payments well.
  • Many nonprofits have bad credit ratings and in a tight credit market cannot borrow money, either.
  • Meantime, the federal government is expected to cut aid to hospitals. 

Sales and mergers of public hospitals are hard to quantify; the country had 16 fewer government-owned hospitals in 2008 than 2003, says the American Hospital Association, the result of sales, closings or transfers. 

Health care consultants and financial analysts say the pace of all hospital sales is picking up at a rate not seen since the 1990s, the dawn of managed care.  James Burgdorfer, a partner with investment banker Juniper Advisory LLC in Chicago, said most public systems would end in the next two decades because the industry has become too complex for local politicians.  "By the nature of their small size, their independence and their political entanglements, they are poorly equipped to survive,'' says Burgdorfer. 

Source: Suzanne Sataline, "Cash-Poor Governments Ditching Public Hospitals," Wall Street Journal, August 29, 2010. 

For text:

http://online.wsj.com/article/SB10001424052748703618504575459823259071294.html  

 

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