Friday, January 10, 2014

Bankruptcy does not require a Chapter 11 filing

Almost three years ago, I wrote:

Academic medical centers face all of the problems of two stressed industries -- academia and medicine. The future will belong to the efficient. Hospitals that are driven by their senior faculty and hopeful junior faculty to expand buildings and research facilities, that invest in high-cost but unproven clinical equipment, that do not engage in front-line driven process improvement, that fight transparency of clinical outcomes -- and that plan to depend on private and government reimbursements, government grants, and philanthropy to pay for all this -- will not do well. Those that limit capital investment in inflexible fixed assets, that focus on higher quality and reducing waste, that endorse transparency, that invest in the science of health care delivery as much as basic science, and that develop and implement treatment modes that take care to the patient rather than requiring physical visits by patients, will do well. 

Bob Herman over at Becker's Hospital Review publishes a periodic report about hospital bankruptcies.  Some places have not filed under Chapter 11 but are already functionally bankrupt, in term of persistent decapitalization of their underlying assets.  Others face major challenges.

Look at this story from the Worcester Telegram:

UMass Memorial released figures Wednesday showing that if not for a one-time gain of $108 million from the sale of certain lab operations, the system would have ended its fiscal year in negative territory, partly driven by shrinking revenue from patients and soaring expenses for salaries and supplies.

Chief Executive Dr. Eric W. Dickson, who warned in October that UMass Memorial would post the operating loss, attributed the results to an effort to focus less on "rescue" care and more on keeping people healthy.

"You've got this huge transition occurring, which in the end is good for the community, good for the businesses in the region, and where health care needs to go to truly make it about health care, but when you're taking a $2.24 billion business that has all the infrastructure, all the buildings, all the people set up in that old model and you move it to the new, there's going to be a significant operating loss," Dr. Dickson said. 

The financial results reflect a system with significant financial challenges. Operating surpluses as high as $83 million in 2009 have dropped each year for the past five years. Expenses for salaries and supplies have steadily grown.  

Moody's Investors Service last month downgraded its rating on $299 million in UMass Memorial debt to one step above junk status, citing a drop in patients, a largely unionized work force, a large number of patients on the government's Medicaid insurance plan for the poor, and growing expenses.


Anonymous said...

Not to be a groupie, but the UMass quote seems to describe BIDMC before 2002, and your description of the steps taken by those who 'will do well' describes BID after 2002, eh? And BID remains perhaps the most cost-efficient academic medical center in Boston.
The point being: it ain't impossible; it's been done.

nonlocal MD

Anonymous said...

The most cost efficient academic medical center "in the country" is a combination of Tufts Medical Center and Lahey Hospitals according to the University Hospital Consortium, which is made up of 120 academic medical centers and 299 of their affiliated hospitals representing the nation's leading academic medical centers.

Note: Tufts Med and Lahey participate together as one unit in the consortium.

Again, the most cost efficient in the country, in a relatively high cost region. Kind of amazing.