More than half of U.S. hospitals insolvent, near insolvency, study finds

More than half of U.S. hospitals are "teetering on the brink of insolvency" or have become insolvent because they do not treat an adequate number of patients to provide sufficient revenue, according to a study recently released by Alvarez & Marsal, the Wall Street Journal reports.

For the study, researchers examined the finances of 3,861 of the 4,900 short-term, acute-care hospitals nationwide and found that 2,044 of the facilities do not make a profit from the treatment of patients. In addition, 744 of the hospitals that do make a profit from the treatment of patients lack adequate funds to make improvements or finance daily operations, according to the study. The study also found that capital expenses for the hospitals are underfunded by $10 billion to $20 billion because the facilities have used those funds to finance daily operations.

George Pillari, a managing director of the health care group at Alvarez & Marsal, said, "We're seeing hospital insolvencies and hospital bankruptcies -- it's the heyday right now," adding, "We're going to see continued insolvencies; we're going to see more bankruptcies this year than last year." According to Pillari, about 500 to 1,000 "top tier" hospitals nationwide make a profit on a regular basis, have excellent credit ratings and hold a substantial share of the market, and "then there's everybody else." He said, "Hospitals can make it. They can get by even if they're insolvent," adding, "But there's not much of a future unless the capital structure is fixed."

Hospitals face a number of problems, such as increased health care costs, decreased Medicare and Medicaid reimbursement rates, and an increased number of uninsured and underinsured patients, according to Gerald Gline, a bankruptcy attorney at Cole, Schotz, Meisel, Forman & Leonard. In addition, he said that many hospitals do not treat an adequate number of patients and face competition from same-day surgery centers and outpatient clinics. Gline added, "There are just too many hospitals" (Palank, Wall Street Journal, 4/30).

The study is available online (.pdf).