Thread: Cash-Poor Local / State Gov. Ditching Public Hospitals

"We've been hit by that whiplash recently, with industries closing down and the number of insured growing less,"

Cash-Poor Governments Ditching Public Hospitals

Monday, August 30, 2010
By Suzanne Sataline

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.


Peninsula Clarion ~ A patient and care giver at Central Peninsula Hospital in Soldotna, Alaska, where the government is considering a partnership with the for-profit LHP Hospital Group of Texas.

Officials in Lauderdale County, Ala., this spring opted to transfer their 91-year-old Eliza Coffee Memorial Hospital and other properties to a for-profit company after struggling to satisfy an angry bond insurer.

"We were next to knocking on bankruptcy's door,'' said Rhea Fulmer, a Lauderdale County commissioner who approved the deal with RegionalCare Hospital Partners, of Brentwood, Tenn, but with trepidation. She said the county had no guarantee the company would improve care in the decades to come. "Time will tell.''

Clinton County, Ohio, in May sold its hospital to the same company. Officials in Kenai Peninsula Borough, Alaska, are weighing a joint venture with a for-profit company, similar to one the same company made with Bannock County, Idaho. And Prince George's County, Md., is seeking a buyer for its medical complex.

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.

"We've been hit by that whiplash recently, with industries closing down and the number of insured growing less," said J.D. Mosteller, the attorney for Barnwell County, S.C., which is considering selling its hospital.

The county has raised property taxes in recent years to bolster the hospital, which spends more than $1 million just to pay emergency-room physicians, he said. "We're a county government. We're not set up to run a nursing home or hospital.''

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,'' Mr. Burgdorfer said.

During the five-year period that ended Dec. 31, 2009, $52 billion was used to fund hospital mergers and acquisitions of all types, says Irving Levin Associates of Norwalk, Conn., which tracks health-care deals. This amount exceeds by 140% the total amount of capital committed to fund hospital deals announced in the prior five-year period.

In the first half of 2010, there were 25 deals involving 53 hospitals that were bought or merged, for a total of $3.1 billion, according to Levin Associates. If deals continue apace, it would be the busiest time since 2007, when there were 58 deals involving 149 hospitals totaling $9.3 billion.

Public and nonprofit hospitals—the latter of which represent three-fifths of all U.S. hospitals and are sometimes affiliated with a religious denomination—can be appealing targets for private operators, which are betting that the new federal law will eventually yield more paying, insured customers.

Chip Kahn, president and CEO of the Federation of American Hospitals, a trade group for chains that own nearly 1,000 for-profit hospitals, said his industry tends to run operations more efficiently, while adding capital.

Most sales include stipulations that the companies keep services, he said. "You've got to provide the array of services that the community expects," he said. "Otherwise you're not going to get the consumers using them.''

Still, skeptics worry that in the hunt for healthy returns, the for-profits will kill expensive programs and close hospitals with poor revenue. Residents in many towns have fretted over the blow to their civic pride and the loss of their history.

The nation's public hospitals rose in different ways. Some were built with philanthropic donations and were sick houses for society's poorest. Many in the west and south rose through loans and grants made possibly by the Hill-Burton Act of 1946. In exchange, public hospitals provide a large amount of free and reduced-priced care. Some are academic medical centers. Many suburban and rural public hospitals provide care to all members of the community, rich and poor.

Residents of Kenai Peninsula Borough in Alaska are debating in letters to the local papers and on a radio call-in show a proposed joint venture that would sell more than half of 40-year-old Central Peninsula Hospital in Soldotna to for-profit LHP Hospital Group Inc. of Plano, Texas.

Mayor David Carey is opposed to the move, as are many residents. He worries that LHP may wind up shrinking or closing the 49-bed hospital, forcing residents to travel 150 miles to Anchorage. "Health care is a major economic engine for us. It's the No. 1 employer in the city,'' he said. "The idea that the hospital could be sold again…or even shut down, is unacceptable.''

Ryan Smith, the hospital's CEO, wants to build a cancer center and expand cardiology and a partner would bring needed capital. Mr. Smith, who said the deal's value is about $105 million, said, "Being part of a system could benefit us."

Some counties are looking at Bannock County, Idaho, where residents voted in 2008 to cede control of their 250-bed Portneuf Medical Center, in Pocatello. A foundation now owns 23% of the hospital, while LHP owns 77%. A community benefit board, half chosen by the foundation and half by the company, governs. LHP kicked in $201 million, mostly to finish building a new hospital.

Before the deal, ``not once do I remember [the public hospital] meeting the financial goals that would have allowed us to restructure the hospital,'' said Larry Ghan, a county commissioner. ``The only way we could do it was to go out and find a partner.''

LHP's Ms. Ball said partnerships succeed because the community and the company share equally in decisions.

The Coffee Health Group in northern Alabama has been in debt since the late 1990s, when bonds were sold to buy three health-care properties. In the past two years, Coffee couldn't keep enough cash on hand to satisfy the bond insurer, said Ms. Fulmer, the commissioner. ``If we could not meet our financial obligation, they were going to come in and do it for us,'' she said.

In March, the county agreed to transfer the county's 350-bed hospital, a smaller area hospital and other assets, to RegionalCare, which agreed to pay off the $140 million in debt, recruit doctors and replace equipment. Area residents liked the company's promise to build a new, 300-bed medical center for $250 million.

A spokesman for the company and the hospital didn't return calls.

Charlie Wilson, a member of the public hospital authority voted no. ``Our charity care was quite high and our bad debt was high, too,'' he said. The company's ability to make a profit, he said, ``is going to be a struggle for them.''

Write to Suzanne Sataline at suzanne.sataline@wsj.com

http://tinyurl.com/268jtd9

When our 2 local community hospitals were bought out by a major health conglomerate, we found out that our doctors could no longer treat you at the hospitals. You had to deal with on staff doctors. The good ole days of relationships, with doctors knowing you and with you trusting your own doctor, are going away as community hospitals go away. Strangers decide your treatment. Doctors are not allowed to treat you or do surgery if they are not associated with that hospital.

2 Chronicles 7:14