3 obvious and not-so-obvious reasons hospitals close

Hospitals across the nation face a myriad of challenges, such as underpayments from Medicare and Medicaid and, in certain markets, declining patient volumes. As hospitals weather these issues, what factors cause one hospital to close its doors while another continues operations unscathed?

1. Location. Most hospitals that have closed in recent years are in rural areas. Those in southern states have especially high rates of vulnerability to closure, such as Mississippi, Louisiana and Georgia. A 2015 study commissioned by the Center for Mississippi Health Policy revealed 31 hospitals in the state are so financially challenged that they are at risk of closure because of either money-losing decisions made internally or unexpected external events they cannot control. Of the 31 hospitals at risk of closure, 20 are rural hospitals.

The majority (63 percent) of hospitals vulnerable to closure are in states that have not expanded Medicaid. In Oklahoma, where Medicaid was not expanded, Sayre (Okla.) Memorial Hospital, a 31-bed nonprofit hospital, abruptly closed in February. Hospital officials said one of the main contributors to Sayre Memorial's closure was the state's decision not to expand Medicaid.

However, a lack of Medicaid expansion wasn't the only reason Sayre Memorial was forced to shut down — the local economy also had a negative effect on the hospital. Sayre Memorial officials said the closure of North Fork Correctional Facility in Sayre also contributed to the hospital's financial downturn. The city had helped keep Sayre Memorial afloat by making payments and funding payroll, but with the huge loss of city revenue due to the correctional facility shutdown, there was less money left to give.

2. Unexpected expenses. Hospitals operate on extremely tight margins, and unforeseen expenses leave some with no option but to close. For instance, plumbing problems pushed McNairy Regional Hospital in Selmer, Tenn., to shut down.

Facility experts discovered significant plumbing problems at McNairy Regional, and the hospital needed to close for at least six months for the repairs. After considering the hospital's deteriorating patient volume and the cost of repairs, McNairy's parent organization, Knoxville, Tenn.-based Tennova Healthcare, decided to close the hospital permanently. The hospital's admissions had dropped nearly 70 percent between 2010 and 2015, and ER visits had also plummeted.

"With the extensive repairs needed, disruption to operations and small number of patients using services, McNairy Regional Hospital is not sustainable," said Pamela Roberts, the hospital's CEO.

Williamsburg Regional Hospital in Kingstree, S.C., was also forced to shut down due to unexpected expenses. The hospital experienced severe flooding in October 2015, which rendered the majority of the facility unusable. Although the facility ceased inpatient services, it still offers outpatient care.

3. Systemwide strategy. Sometimes a hospital closes because it is deemed the weakest link in its network. One of those hospitals was Southeast Health Center of Reynolds County in Ellington, Mo.

In early February, SoutheastHEALTH in Cape Girardeau, Mo., announced plans to close Southeast Health Center of Reynolds County and its related clinics, and the hospital closed March 11. SoutheastHEALTH President and CEO Kenneth Bateman said closing the hospital was a difficult decision. However, he said the financial strength of the entire system would be compromised if it continued to absorb the hospital's losses. The system acquired Southeast Health Center of Reynolds County in 2013. In its three years of ownership, the system absorbed more than $17 million in operating losses.

Saddleback Memorial – San Clemente (Calif.) is slated to close May 31. This 73-bed community hospital is also dragging down the finances of its parent system Fountain Valley, Calif.-based MemorialCare Health System. Patient volume at Saddleback Memorial – San Clemente has dropped dramatically, and many days there are less than 10 inpatients at the hospital, according to officials. Before deciding to shut down the facility, MemorialCare explored other strategies, but to no avail.

In August 2014, MemorialCare announced plans to convert the hospital into an outpatient medical campus. The system worked with state lawmakers on legislation that would have allowed a satellite emergency department at the outpatient campus in San Clemente. However, the legislation failed in January. The following week, the San Clemente City Council voted to rezone the San Clemente campus property to require hospital services.

"Without legislation to allow a satellite emergency department, and given this new restrictive rezoning that requires hospital services, the vision to convert the campus into a modern ambulatory care center cannot now be achieved," said hospital officials.

In April, MemorialCare Health filed a lawsuit against the city of San Clemente, requesting potential damages of $42.5 million for losses associated with the planned closure of the hospital. In its suit, MemorialCare asks the court to repeal the zoning ordinance passed in January. MemorialCare claims when the system purchased the hospital in 2005, the city promised the facility could be altered to fit the healthcare needs of the community.

More articles on healthcare finance:

How CHS, Tenet, UHS, LifePoint and HCA fared in Q1
5 health systems with strong finances
AHA weighs in on CMS' proposed drug payment model

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars