Yesterday, we outlined the root causes of financial problems plaguing CHS and other for-profit hospital chains. Today, we’ll take a close look at the factors that make some systems better equipped to weather the storm—while leading to a bleak forecast for CHS.
– Debt: Greater amounts of debt and higher interest rates create a significant drag for CHS. Its interest rates are about 40 percent higher than that of HCA. But, debt brings a delicate balance for even financially stronger HCA, whose debt to asset ratio of about 0.93 on over $31 billion in debt shows significant reliance on debt to produce growth.
– Location, location, location: Hospital systems that create regional referral monopolies can “integrate” to produce profit from “optimized services and shared assets.” The fewer inner-city and rural locations, and the more suburban locations, the better, given the degree to which location reflects less self-pay and less charity service. But who will care for the poor?
– Insurance “coverage” is meaningless—unless you can afford the add-ons. A card that proves you have insurance coverage is of no value if you can’t afford deductibles and copayments. That patient will be seen—just as was the case before Obamacare—in the emergency room and be covered via either “self-pay” or Medicaid–leading to hospital losses.
– As a consequence, people schedule fewer doctor visits. That’s not necessarily a bad thing unless patients delay needed treatment and suffer more expensive, severe complications, which cost considerably more.
– Admissions: Even the biggest names are reporting big problems: Modern Healthcare reports that “Indiana University Health suffered a decline in its second quarter…with the system reporting 2% lower same-facility admissions. Operating expenses still increased 1% year-over-year, with salaries, wages and benefits rising 3%, the financial disclosure showed. That dip in admissions is consistent with trends reported recently by investor-owned hospital chains HCA, Community Health Systems and Universal Health Services in their earnings releases.”
– Changes in Insurance Coverage: Even Mayo Clinic appears to be retrenching. In a surprising and controversial move, citing staffing shortages, rising costs, and declining reimbursements, Mayo Clinic Health System announced Monday it is moving most of its inpatient services from its Albert Lea campus to its Austin campus, 23 miles away. Also, Mayo CEO John Noseworthy, citing tighter profit margins (due to increases in Medicaid patients), recently told his employees that the health system will prioritize the care of privately insured patients over those on Medicare and Medicaid.”
The culmination of all these factors can be seen in this statistic: according to the American Hospital Association’s most recent data, nearly 160 hospitals closed from 2013 to 2015, eliminating nearly 23,000 hospital beds. Many hospitals are “doing fine” if they are well-managed, well located and enjoy a “good payor mix”–meaning good insurance or wealthy patients not on Medicare.
In consideration of these common headwinds, what are the prospects for Community Health Systems? From the remarks of analysts and from their financial statements, they appear to:
1. Have a great debt burden,
2. Have too many rural locations,
3. Appear to have made poor management decisions,
4. Have cut costs so relentlessly that patient experience and maintenance have suffered, and
5. Have relatively little room for more debt.
In addition, nothing we see in Fort Wayne would indicate that they have excellent relations with nurses and physicians. So, can CHS survive? Or will the perfect storm in the healthcare industry create headwinds too strong to overcome?