Moody's urges hospitals to remember record-setting healthcare bankruptcy

In 1998, the U.S. healthcare industry saw what was, at that time, the biggest bankruptcy filing ever by a not-for-profit health system. Allegheny Health & Education Research Foundation, a $2 billion giant that straddled all of Pennsylvania, had emerged during a frenzied period in the industry when health systems were madly buying physician practices and cutting deals with independent hospitals. The idea was to scale up as quickly and aggressively as possible.

Now, 10 years later, Moody's Investors Service is urging healthcare leaders to stop and reflect on what went wrong. As some observers see it, the Allegheny debacle had all of the elements you'd expect to see in a massive collapse, including an extremely ambitious CEO, a board that did little to hold him back and far-too-rapid growth.

Today, Moody's notes, hospitals are even less prepared to expand at the pace Allegheny did. For one thing, while Medicare and Medicaid are about half of hospital revenues, reimbursement is not adequate, and what's more, hospitals remain vulnerable to future shifts in policy. Meanwhile, hospitals are facing their own issues with the weakening economy.

To address these issues, Moody's says hospitals have learned to impose stronger board controls, stick to a disciplined growth strategy and be more transparent in disclosing hospital performance to stakeholders.

To learn more about Moody's report:
- read this Philadelphia Inquirer blog item

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