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Hospitals are vanishing and undoing the ACA may make it worse

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(Bloomberg) — The two gleaming operating rooms in this Kingston, New York, hospital still look brand-new seven years after being built for $5 million: They’ve never seen one patient, and never will.

With an occupancy rate of just over 50 percent, the 150-bed hospital, its surgery center and an emergency department renovated in 2011 for $6 million will be closed and retrofitted into what its new owner calls a “medical village” of outpatient services such as physical therapy and behavioral health services.

The story of the 123-year-old facility, located in a small town about 100 miles north of New York City, is repeating itself nationwide. Hospitals have been disappearing as government pressure to drive down costs moved care to standalone units, doctors’ offices and even patients’ homes. Now, with the election of Donald Trump and his promise to repeal the Affordable Care Act, aka Obamacare, they find themselves more vulnerable than any other health care providers to the major disruptions ahead, as they could lose government funds and face an increase of uninsured or less-profitable patients.

Related: Hospitals say ACA exchanges help them

“It’s been a very tough environment for hospitals,” said Jason McGorman, a Bloomberg Intelligence analyst. “They have to get into other areas and businesses to free up cash and generate better margins than inpatient care, which has become a slow-growth business.”

All kinds of services are moving outside hospitals: hip and knee replacements, heart valve repairs, even child birth. Mt. Sinai Health System in New York City, which is closing an 856-bed hospital to reopen at the same site as a 70-bed facility, has a program that provides hospital-level care in patients’ homes for conditions such as congestive heart failure and cellulitis infections.

Adapt or die

The timing of a possible undoing of the ACA, President Barack Obama’s signature health care law, is highly uncertain, with Republicans disagreeing on how to tackle the effort and what would replace the program. But regardless of Obamacare’s fate, the move toward cheaper outpatient services is forcing hospitals to adapt or die.

The driving forces behind the change are the payers of hospital bills — insurers and the government — seeking to cut costly hospital admissions through a mix of reimbursement restrictions and incentives. The Medicare program for the elderly is the biggest payer for medical services in the country, but lowering the costs of the Medicaid program for the poor, which is jointly funded by the federal government and states, is also a major focus. Some states — including New York, Texas and California — are so eager to reduce their Medicaid bills that they grant hospital systems millions of dollars to redesign care in ways that cut the need for beds.

One of the beneficiaries is Westchester Medical Center Health Network, which bought the former Kingston hospital in March. The nonprofit system is eligible for more than $360 million from New York state’s $8 billion program to reduce Medicaid admissions 25 percent over five years. About $89 million will be used to transform the Kingston facility and transfer some of its current services into another nearby affiliate.

Large for-profit chains such as HCA Holdings Inc. and Tenet Healthcare Corp. have taken measures to adapt. HCA has focused its operations in urban areas, where populations are higher and demand for high-margin services is greater, while Tenet has aggressively moved into outpatient care while expanding Conifer, its health management services unit.

Still, their shares fell sharply after Trump’s election as investors worried a repeal of Obamacare — which brought coverage to 20 million people since it was passed in 2010 — without a quick replacement would hurt profits. Hospital valuations are now near five-year lows on concerns that funding for the law’s public exchanges may be revoked, increasing bad debt expense and cutting earnings, according to Bloomberg Intelligence. Tenet and HCA declined to comment.

Medical village

In the so-called medical village planned inside the former Kingston hospital, Westchester Medical has already mapped out areas for patient education and occupational and physical therapy. Behavioral and nutritional services, senior services such as respite care, perhaps even art therapy may be added in the future — anything that could help keep patients, especially with low income, from ending up in the emergency room.

“We’re gambling on better outcomes,” said Marsha Casey, executive vice president of the Westchester Medical network. “Too many people are admitted because they aren’t enrolled in good primary care and prevention programs, and it will cost all of us a lot less if we start caring for them well.”

Meanwhile, at MidHudson Regional Hospital, another Westchester Medical affiliate in Poughkeepsie 20 miles down the river, mental health social workers work in the emergency room along with a “mobile crisis” unit that counsels patients outside the hospital. MidHudson is working with Duchess County on the plan to care for patients outside the emergency room, and has received some county funding.

The U.S. is the most expensive country in the world for hospital care, which accounts for about a third of the $3 trillion in annual health care spending in the country, according to the Centers for Medicare and Medicaid Services. With prices for an overnight stay that dwarf other nations’, systems are under unprecedented pressure to cut expenses.

Rural facilities, which typically have lower margins, are the most vulnerable, and their closures have a societal impact — forcing patients to travel to get emergency care. More than 600 rural hospitals are at risk of closing because of their finances and, at current closure rates, more than a quarter of them will shut down in less than 10 years, according to the National Rural Healthcare Association, which tracks the number.

Related health services also suffer when a hospital shuts down, said Mark Holmes, director of the North Carolina Rural Health Research Program, a nonprofit academic research center.

“The hospital is the nexus of the health system,” he said. “If it leaves town, the physicians who attend there are going to leave too.”

In an equation that repeatedly subtracts beds, hospital leaders are struggling to understand where they fit in, said Mark Wager, president of Heritage Medical Systems, which operates physician groups in New York, Arizona and California.

“If you just built a new cardio center based on previous incidence rates, well, the model just blew up,” he said. “If my hospital isn’t one that does well, will it go away? It might need to.” 


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