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Hospitals across US face difficult times

By Robert Kilborn Jr.Staff writer of The Christian Science Monitor / January 5, 1983



Boston

One day last November a group of people gathered in a Washington hotel for a conference whose title says much about the growing concern in some quarters over the US hospital industry.

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The title: ''Urban Hospital Closures: Thinking the Unthinkable.''

By some estimates, as many as 1,000 of the roughly 6,000 public and private hospitals in the United States may fail in the next several years. The reason: stiff competition with other facilities, coupled with shrinking government revenues that can be spent on reimbursing health-care costs.

No one is seriously suggesting that the hospital industry is in crisis, but it does face some significant problems, especially in the Northeast. Ironically, these troubles come at a time when the industry is claiming credit for reaching its highest quality level ever.

''Our problems grow out of 15 years of success,'' says Alex McMahon, president of the Chicago-based American Hospital Association. ''Hospitals were told to provide more and better care for more and more people, and they did.''

''But the people who made the promise to the American public - and by that I mean Congress - now don't want to pay for it,'' Mr. McMahon says.

Others see the matter somewhat differently. Says Dr. James McGovern, director of health finance for Illinois: ''Unlike some other aspects of our economy, where industries have reined in their expansion plans, hospitals haven't. The message of Proposition 13-type conservative financing just did not get through to the hospitals.''

The burden of reimbursing medical costs, Dr. McGovern says, has been ''sinking the ship of state,'' especially in the Midwest.

Indeed, medical-care costs in the US have been rising at an annual rate of 18 percent. A blue-ribbon federal panel recently began work on ways to save the medicare program from insolvency, which may occur by the end of this decade. Medicare's costs - like those of the social security system - are increasing faster than its revenues.

Meanwhile, hospitals are taking some dramatic steps to adjust to current conditions. Many of the leaders in this move come from the Northeast. In some cases, they are merging or consolidating. Some are forming loose coalitions to address common problems or conduct joint purchasing.

In other cases, hospitals are reorganizing, forming holding companies to oversee their affairs, or profitmaking subsidiaries, such as management services. Where antitrust laws permit, some efforts also are being made to avoid duplication of services with other hospitals nearby.

Many facilities dip into their endowments to help break even, especially in the Northeast where such funds are more common than in other sections of the country. Endowments usually are intended to be used only for capital improvements.

Finally, many hospitals, especially in the public sector, are contracting with large, for-profit companies for a full range of management services.

Yet some industry sources say there is a limit to what hospitals can do in the way of belt-tightening, especially since labor costs often account for as much as 70 percent of annual budgets.

The least fortunate hospitals, industry sources indicate, will simply fail. These fit a profile, says Maurice May, a longtime hospital administrator and now executive director of the Hebrew Rehabilitation Center for the Aged in Roslindale, Mass. That profile: an 85 percent or less occupancy rate; a weak technical and financial structure; an aging staff of doctors whom other hospitals don't want; and stiff competition.

Mr. McMahon denies, however, that the closure rate will be dramatic. The major sources for concern, he says, are big-city facilities with large charity loads. In the past two years, American Hospital Association statistics indicate, only 70 US hospitals have failed. Most of them were in the 50-bed range or smaller.

Generally, McMahon and others say, hospitals are in better financial shape in the West and South, where states do not impose the heavy regulatory burdens that their Northeastern counterparts do.

Indeed, in New York, where no fewer than 164 different government agencies have a say in the way hospitals are run, one industry veteran complains that 25 percent of his former facility's operating budget went toward complying with such rules.

Massachusetts, with the highest health-care costs in the country, recently imposed a law requiring all hospitals in the state to reduce their budgets by an average of 1.25 percent a year over the next six years.

Under the law, whose effects are being watched closely around the industry, hospitals in the state may receive reimbursement of 100 percent of their previous year's budgets even if their costs end up at less than that sum. But those that overspend their earlier budgets will be allowed to collect only half the amount above that ceiling.

Already hospitals in the state have stopped hiring and are cutting their staffs through attrition, says David Kinzer, president of the Massachusetts Hospital Association.