Western Pennsylvania's community hospitals need rescue from financial straits
By Alex Nixon
Published: Thursday, Aug. 29, 2013, 12:01 a.m.
Western Pennsylvania hospitals are under increasing financial pressure and are resorting to mergers with larger health systems, cutting services and laying off workers to survive.
Lower patient volumes and higher expenses, combined with reimbursements that aren't keeping pace with inflation, are hurting the bottom lines of medical centers of all sizes across the region and country.
But smaller community hospitals are especially vulnerable to the squeeze that in recent days has led Sharon Regional Health System to agree to be bought by a large for-profit hospital company and Uniontown Hospital to ax its skilled nursing facility, psychiatric unit, rehab program and diabetes care center.
“This is happening all over the place, especially with small hospitals,” said John Bowblis, assistant professor of health economics at Miami University of Ohio. “Unless you team up with someone who is bigger, you're going to face financial pressure.”
The latest moves in Sharon and Uniontown follow layoffs in recent months by UPMC, West Penn Allegheny Health System, Washington Hospital and Excela Health; and the purchases of Altoona Regional Health System by UPMC and West Penn Allegheny by health insurer Highmark Inc.
Bowblis said fewer people are being treated in hospitals as more care shifts to outpatient centers, which cuts into a hospital's revenue. Hospitals are facing bigger expenses for technology and to hire doctors at a time when the government Medicare and Medicaid programs, and private insurers, are trying to clamp down on rising health costs.
Earlier this month, Moody's Investors Service said in a report that the Medicare program will increase hospital reimbursements next year by 0.7 percent, far below the 2.5 percent increase in hospitals' costs that Medicare predicts.
Medicaid may begin cutting reimbursements to hospitals that treat higher levels of poor people on Oct. 1. And many hospitals took a 2 percent cut in payments under the federal sequestration this year.
UPMC, for instance, last week reported operating income of $140.3 million for its fiscal year ended June 30, a drop of 60 percent from the previous year. Operating profit at the region's largest hospital network has been declining because expenses are rising faster than revenue is increasing.
On Wednesday, Sharon Regional, a 251-bed hospital in Mercer County, said it signed a letter of intent to be acquired by Community Health Systems Inc. of Franklin, Tenn. Community Health Systems owns 135 hospitals in 29 states, including 17 in central and Eastern Pennsylvania.
“Many hospitals and health care systems are aligning with partners that can support their operations with the significant resources and management expertise required to be successful in this dynamic period of change across our industry, especially as health care reform takes effect,” John Janoso Jr., Sharon Regional's CEO, said in a written statement.
Sharon Regional hasn't negotiated a price tag for the deal but expects a significant investment in the hospital after the acquisition closes later this year, spokesman Ed Newmeyer said.
The hospital has been struggling financially. In its 2012 fiscal year, Sharon Regional reported operating income of $193,000, a 78 percent decline from the year before. That led credit rating agency Fitch Ratings in November to downgrade its outlook on the hospital to negative.
Adam Kates, a Fitch health care analyst, said he hadn't seen final numbers for the hospital's most recent financial year, “but it looked like some of the pressures continued in 2013 as well.”
On Friday, Uniontown Hospital, a 224-bed medical center in Fayette County, announced it will end four medical programs by the end of the year in an effort to avoid a loss of $6 million, or 5 percent of its $120 million budget for the fiscal year that will end next June.
Hospital CEO Paul Bacharach said elimination of the services was caused by a combination of declining hospital admissions, reduced reimbursements and higher employee costs.
“This has placed a tremendous burden on hospitals throughout the region,” Bacharach said in a written statement. “The potential of a loss of this magnitude is unsustainable on a long-term basis, and that is making it imperative to adapt the hospital to meet future heatlh care needs of the community.”
Hospital spokesman Jim Proud said 70 people work in the four departments, but the hospital hopes to avoid laying people off by shifting them to other areas that have open positions.
Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or firstname.lastname@example.org.
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