The study by Alvarez & Marsal, a leading professional services firm, shows the following:
- More than 2,000 of the nations 4,900 acute care hospitals do not make a profit from treating patients.
- The majority of potentially insolvent hospitals are in urban areas.
- Capital expenses are hugely under-funded.
One of the interesting aspects of the study is the contrast to the record profits as a whole the hospital industry has shown over the last 24 months. This is partially explained with the concept that approximately 1,000 very profitable hospitals account for the great majority of overall industry profits.
"The findings of this study underscore the sobering reality that decades of incremental change have not ensured the long-term viability of our nation’s hospital system," said George D. Pillari, a managing director in Alvarez & Marsal’s Healthcare Industry Group, according to a press release. "With a government safety net becoming less and less reliable and non-patient sources of funding becoming fragile, it has become critical for hospital management and boards to deal with these troubling issues head on and take urgent steps – such as restructurings, mergers or recapitalizations – to improve their finances and allow hospitals to execute on their missions.
“In the absence of such action, hospital insolvencies will increase and community after community could be forced to grapple with a steady decline in access to care,” Pillari said.
The study also found that potentially insolvent hospitals had a median occupancy rate of 43 percent, 10 percent lower than the remainder. Also, potentially insolvent hospitals had a median ratio of total liabilities to total assets of 71 percent compared with 43 percent for the remainder.
The data gathered was for fiscal years ending in 2005 and 2006 and included operating expenses and net revenue. It was gathered for each short-term acute care hospital in the United States with more than 25 beds.
To read the complete study report, click here.
