Procrastination on finances leads to hospital bankruptcies

A single bad year doesn't typically force a hospital to enter bankruptcy. Usually, bankruptcy is the result of hospitals ignoring warning signs of financial troubles for years before they were forced to file, according to Healthcare Finance News.

A new study on the topic by researchers at the University of Alabama at Birmingham found that most hospitals were done in by steadily declining admissions, revenues and relationships with their physicians, and were unable to reverse them.

The researchers followed 42 hospital bankruptcies between 2000 and 2006. Most of those forced to file for bankruptcy were smaller standalone facilities on the West Coast or the Northeast. They were also more likely to be not-for-profit facilities, organizations that may not be prompted to undertake a turnaround earlier than their for-profit counterparts.

Along with the declining reimbursement, in some cases the financially troubled hospitals undertook a project that exacerbated the situation, such as a long-term capital project.

"They need to be cognizant of these things and if they are paying attention, they can right the ship," Amy Landry, an assistant professor with the university's health services administration program, told Healthcare Finance News.

Because hospitals must be better attuned to financial issues and avoid potential bankruptcies, many organizations are recruiting CEOs and senior executives who have a finance background and not  traditional healthcare experience.

Of the hospitals that filed for bankruptcy, many were able to turn their operations around, or make their organizations attractive enough to find buyers. However, other studies suggested that up to two-thirds of facilities do not survive the process, such as Interfaith Medical Center.

"Considering how bad a financial position these hospitals were in, you can say the glass is two-thirds empty, but it may be better to say it is one-third full," said Gloria Bazzoli, a professor of health administration at Virginia Commonwealth University. "The fact that one-third were able to turn around is remarkable … and is a positive view on the success of bankruptcy filing."

To learn more:
- read the Healthcare Finance News article