Before you get into this article, I want to say: To those of you who thought you were getting such a GREAT DEAL -- "YES WE CAN!!!" --- I hope that you enjoy the 'end' product, if you know what I mean. Most likely you won't, but this is because of NO Due Diligence. Thank YOU!
NOW FOR THE ARTICLE:
Analysts say physicians also could end up winners and losers, depending on who is affiliated with the larger health system.
By BOB COOK, amednews staff. Posted Aug. 15, 2011.
When it comes to hospitals and their financial health, they are either thriving or wheezing -- with no in-between.
"The gap between the haves and have-nots is getting bigger," said Samuel R. Maizel, who represents financially distressed hospitals as a partner at the Los Angeles-based law firm of Pachulski Stang Ziehl & Jones.
There isn't one official set of numbers that bears out his claim, but analysts say anyone who has seen news reports about hospitals alternately adding jobs or subtracting them is right in thinking that hospitals are either growing or struggling.
Larger, more well-capitalized hospitals always have had advantages over their smaller, less financially stable competitors. But analysts say health system reform, and declining or changing government payments, are making those differences more acute.
With quality-based payments and accountable care organizations a big part of health reform, analysts say the advantage goes to hospital systems that can assemble a network of primary care, specialty care and acute care services, and manage patient information electronically. Those systems that can't accomplish this either will die or be acquired by those that can.
"What is beginning to happen, and it's been happening for the last few years, is healthy systems are becoming aggregators of other hospitals," said Robert Betka, a hospital consultant and owner of Catalyst Management Advisers in Grand Rapids, Mich. "They are making sure they own the full spectrum of preventive care, primary care, specialty care and post-acute care. They are positioning for ACOs, pay-for-performance, and making sure they can keep dollars within the system across the entire continuum."
Also, with budgetary pressure to cut Medicare and Medicaid payments and make them more quality-based, those systems more reliant on government pay are hurting even before the bulk of health reform is scheduled to be implemented in 2014.
In a July 15 report, Moody's Investors Service said its ratio of bond ratings downgrades to upgrades was 4-to-1 in the second quarter of 2011, mostly because of decreased government funding. Moody's said 67% of the downgraded hospitals in the second quarter were those with less than $500 million of revenue, as were 72% of the downgraded facilities in the first half of the year.
Larger hospitals have been more aggressive in recent years about acquiring physician practices, affiliating with them or hiring physicians directly, analysts said. That could create winners and losers among physicians, determined by who is affiliated with the larger hospital system.
The model of a physician splitting privileges between multiple hospitals is changing, said Eric Johnson, senior vice president of Avalere Health's health care network practice. "Those splitters are receding from the marketplace," he said.
Maelstrom within the calm
By some measures, it appears hospitals as a whole are doing OK. The number of mass layoffs -- 50 or more employees cut at one time -- at hospitals was 63 through June, according to the Dept. of Labor's Bureau of Labor Statistics. At that pace, there would be 126 for the year, fewer than the 137 in 2010 and the record 152 in the recessionary year of 2009. Meanwhile, after a slight decline in June, hospital jobs rebounded in July, going up 14,000 to a seasonally adjusted 4,755,800, according to the BLS.
Also, the Healthcare Finance Management Assn., in an Aug. 1 report, noted that hospitals' collective margin has stayed steady, at around 2.5% every year, since 2005.
Despite those seemingly positive numbers, analysts said, the hospital industry is going through changes that are shaking out financially weaker systems.
For one thing, even before health reform, there has been a long-term decline in hospitals' historic revenue generator -- inpatient care -- as a share of its collections. The percentage of hospitals' revenue that came from outpatient care increased from 20% in 1989 to 40% in 2009, the most recent year available, according to the American Hospital Assn.
The AHA also reported that Medicare and Medicaid payments have not met the cost of care since 1999, and are covering less of that cost every year. Hospitals collected $35 billion less from Medicaid and Medicare in 2009, the most recent year available, than the cost of the care provided, the AHA said.
Since that time, the necessity of collecting outpatient revenue, and the troubles for facilities that rely on government revenue, have grown even more critical, analysts said.
"The large hospitals that are parts of large chains, hospitals that have access to capital, are doing well and will do well under the new health care reform bill," Maizel said. "But stand-alone hospitals, undercapitalized rural hospitals, hospitals that see a high percentage of government reimbursement or those who are presently uninsured -- those hospitals are either going to merge or go out of business."
One of Maizel's clients is Victor Valley (Calif.) Hospital, a stand-alone facility that is in bankruptcy. On July 14, a judge allowed Prime Healthcare Services Foundation to buy the facility for $35 million, a deal awaiting the California attorney general's approval. Meanwhile, bankrupt or struggling nonprofit systems in Massachusetts and New Jersey are being purchased by for-profit systems. Money-losing West Penn Allegheny Health System in Pittsburgh was bought in June by a health plan, Highmark.
Although a few larger systems might trim some nonclinical workers to keep costs under control, in general they are expanding. For example, both IU Health and St. Vincent Health, two large primary-care-to-acute-care systems in Indianapolis, have announced plans to build 40-bed hospitals near the same exit off Interstate 69 in Fishers, Ind., where each already had outpatient locations. IU Health's will open in fall 2011, and St. Vincent's will open in December 2012.
"The ones that are hiring [are] teaching hospitals, large hospitals, well-known, good-name hospitals. Name-brand hospitals," said Mahmud Hassan, PhD, director of the Rutgers University Pharmaceutical MBA program in New Jersey and a professor of finance and economics at the school.
Johnson, of Avalere, said a few small hospitals still will find a place in the industry, particularly if they can burnish their reputations "in a niche-y sort of way." But in general, he said, with the growing emphasis on scale, and bigger hospitals' deeper pockets, "smaller hospitals are going to lose."
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