PREDICTING HOSPITAL CLOSURE USING POPULAR FINANCIAL INDICATORS: AN EXPLORATORY STUDY OF MUHLENBERG HOSPITAL.

Author:Crosby, Andrew

INTRODUCTION

Equity and sustainability in healthcare have emerged as broad-based and cross-sector public policy issues. Over time, the United States' healthcare system has evolved into a dynamic mix of public and marketplace solutions to the challenge of achieving the maximum public good for the greatest number of people. Today, healthcare is a public/private venture comprised of complex revenue streams and diverse accountability structures. The public administration roles in the $3.4 trillion U.S. healthcare industry span that of provider, purchaser of services, initiatives and research funder, regulator, and policy implementer. In today's precarious and unprecedented political climate, amidst layers of government bureaucracies, choking budgets, and an increased focus on better and fairer healthcare outcomes, the integration of public policy, administration, and healthcare has become increasingly important to practitioners and researchers alike.

Of particular importance is the recent rise in U.S. hospital closures that impact healthcare delivery to our communities. Although health policy studies abound in the healthcare literature, there remains a dearth of research in public administration literature - despite more than a trillion public dollars invested in healthcare annually. This manuscript aims to address this deficit by analyzing financial risk factors associated with hospital fiscal health. Specifically, can hospital financial insolvency be predicted using popular and readily obtainable financial indicators? This paper begins with background into the topic, including the hospital used as a case example. The background also provides the foundation of the study and explores the financial indicators selected for the study. The Methods section is presented next, followed by the Results, the Discussion and finally the Conclusion.

BACKGROUND

To say that the role of government in the U.S. healthcare system is important is an understatement at the very least. For example, the major government health care programs--Medicare, Medicaid, the State Children's Health Insurance Program (SCHIP), the Department of Defense TRICARE and TRICARE for Life programs (DOD TRICARE), the Veterans Health Administration (VHA) program, and the Indian Health Service (IHS) program, provide health care services to about one-third of Americans. Particularly, Medicare, and the federal-state funding source, Medicaid are the two public health financing mechanisms that comprise significant funding to hospitals. These two revenue sources account for 37 percent of all healthcare financing in the U.S., while private health insurance covers 34 percent, and out of pocket expenditures account for 10 percent (CMS, 2018). Hospitals are a critical component of the U.S. healthcare delivery system, representing public-private businesses serving public interest. The American Hospital Association tallies 5,564 hospitals in the United States, with 16 million employees and accounting for about one-sixth of the U.S. economy. This includes 956 state/local government community hospitals, 209 federal government hospitals, 2,849 not-for-profit hospitals and 1,035 for profit hospitals (AHA, 2018).

Increasingly, hospital closures have become more commonplace than exception. According to data from the American Hospital Association, hospitals are closing at a rate of approximately 30 hospitals per year as of 2018, and financial analysts expect this trend to continue accelerating (Flanagan, 2018). Further, hospital closures disproportionately affect poor and rural communities (Kaufman, & Pink, 2017; Kaufman, et al., 2016; Holmes, Wishner, Solleveld, Rudowitz, Paradise, & Antonisse, 2016). Not only are hospitals faced with the same financial pressures as non-healthcare related organizations during times of fiscal stress, so too are they challenged by healthcare specific issues. From the boom in high deductibles and better technology, to more case management and shrinking reimbursement, including underpayments from Medicare and Medicaid, the recent trend in community hospital reorganization to maintain solvency comes as no surprise. In addition, mismanagement or heightened competition, increased prices for medical care, natural disasters, and patient preference for larger, urban hospitals, and smaller health networks have triggered some hospital bankruptcies (Value Healthcare Services, n.d.). It is also no surprise under these circumstances, as Evans (2015) and Murphy (2016) point out, that public policy and marketplace incentives encouraging health systems to promote prevention and keep patients with chronic diseases out of the hospital, result in small, independent hospitals being the most vulnerable to financial stress. This is due in large part to declines in occupancy rates and the lack of capital to invest in primary and ambulatory-care facilities (Rosko, Goddard, Al-Amin, & Tavakoli, 2018), which attract patients seeking prevention and wellness services or whose insurers are pushing them to seek care in outpatient settings (Evans, 2015; Deloitte Touche Tomatsu Limited, n.d.).

These hospital closures, mergers and bankruptcies can have detrimental effects on communities and residents who reside in them (Holmes, Wishner, Solleveld, Rudowitz, Paradise, & Antonisse, 2016; Terry, 2010). One example is the loss of community members' access to emergency rooms and to primary and specialist care. Not only are important health services based at hospitals, hospitals are also a main source of community employment, are vital to local economies and may even impact the overall health of community residents (AHA, 2012; 2017). Hospital closures have especially important public policy consequences to healthcare access for vulnerable populations, particularly in a recessionary economy under health care reform (Jervis, Goldberg & Cutting, 2012).

Just as finance officers and managers need to continuously monitor and evaluate the fiscal condition of government jurisdictions (see, for example, Crosby & Robbins, 2013; Maher & Nollenberger, 2009), so too should hospital administrators consider doing the same. This task, however, extends beyond the "normative" suggestion to an immediate need for a financial indicator system for U.S. hospitals. However, in light of this trend in hospital closings, studies in hospital financial solvency and financial indicator systems have only barely surfaced among public administration scholarship.

With few exceptions, (e.g. Pink, Holmes, D'Alpe, Strunk, McGee, and Slifkin, 2006; Jervis, et al., 2012) studies are lacking with respect to developing a predictive model of hospital closures. To begin to address this literature gap, this research applies a financial monitoring system to one of New Jersey's community hospitals, Muhlenberg Regional Medical Center, a 131-year old hospital, which closed on August 13, 2008. Muhlenberg had been the 18th hospital to close in New Jersey since 2000 (Terry, 2008). Its parent company, Solaris Health System, claimed it could not sustain the financial losses, and despite a great deal of community opposition, the New Jersey Department of Health and Senior Services approved the closure. Indeed, Muhlenberg Hospital is only one of many to struggle with financial strain.

Total U.S. health care expenditures rose 4.8 percent from 2015 to reach nearly $3.4 trillion in 2016 and are projected to reach nearly $5.5 trillion by 2025, (CMS, 2017) and public spending will comprise about half. This research is not only timely and central to best practice healthcare management and reform, but also for public management. It is imperative that policy makers recognize the intended and oftentimes unintended consequences of hospital closures on communities. Given also that out of the 5,564 registered hospitals in the U.S. in 2017, about 20.2 percent are state-owned, 58.5 percent are nonprofit and 21.3 percent are for-profit (AHA, 2018). Hospital executives, health care policy-makers, taxpayers, and other stakeholders will benefit from this and other studies that determine financial indicators leading to financial stress and ultimately financial insolvency.

Financial pressures on all hospitals continue to rise (Bazzoli et al., 2007) and the complexity of revenue streams in hospitals continues to be associated with financial stability and positive health outcomes for patients (Wertheim, & Lynn, 1993; Manary, Staelin, Boulding, & Glickman, 2015). Further complicating solvency, hospitals serving low-income minority communities and those with high Medicare billing ratios are more at risk for closure (Jervis et al., 2012). It is therefore important to take a deeper examination of the context within which hospital insolvency occurs. Consequently, this paper examines in depth the closure of a long-serving community-based hospital in New Jersey.

MUHLENBERG HOSPITAL

In 1875, Plainfield, N.J. Mayor Job Male donated land in Plainfield for the construction of Muhlenberg Hospital (Plainfield Library, n.d.). Muhlenberg Hospital was built in 1877 and served central New Jersey as a full-service community based acute care hospital for more than 130 years. In 1998, as a response to serious revenue shortfalls amid increasing dependence on public revenue streams, Muhlenberg merged with JFK Health Systems to form Solaris Health Systems, Inc. (City of Plainfield, 2014). After many years of declining revenue, Muhlenberg Hospital experienced a $16.5 million budget shortfall in 2007 (Friedman, 2008; City of Plainfield, 2010). At the time of its closing, Muhlenberg was serving about 35,000 patients through its emergency department each year. A medium-sized hospital with 355 in-patient beds, in 2008 Muhlenberg closed its doors as a community-based hospital, becoming the 18th hospital to close in New Jersey since 2000 (NJHA, 2016). Muhlenberg was located less than an hour from New York City, about half an hour from Newark, NJ, 13 minutes from Scotch...

To continue reading

FREE SIGN UP