Many public hospitals owned by local governments are being slated for disposal as rising costs force them to tighten their financial belts. Because most public hospitals tend to be solo operations, they don’t enjoy the economies of scale, or more generous insurance contracts, which bolster revenue at many larger nonprofit and for-profit systems.
Over 20% of the nation’s 5,000 hospitals are owned by governments. Many are drowning in debt caused by cuts in Medicare and Medicaid, rising health-care costs, a spike in uninsured patients, and payments on construction bonds sold in better times. Furthermore, many nonprofits have bad credit ratings and in a tight credit market cannot borrow money, either.
The changes created by the new health-care bill may be partly responsible for the decline in public hospitals. New requirements for technology, quality accounting and care coordination mandated under the new law will add measurably to the cost of running hospitals. In addition, the federal government is expected to cut aid to hospitals.
Health-care consultants and financial analysts say the pace of all hospital sales is picking up at a rate not seen since the 1990s. James Burgdorfer, a partner with investment banker Juniper Advisory LLC in Chicago, said most public systems would end in the next two decades because the industry has become too complex for local politicians. “By the nature of their small size, their independence and their political entanglements, they are poorly equipped to survive,” Mr. Burgdorfer said.
