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Good Thing Hospitals Are Closing

Philip Betbeze, for HealthLeaders Media, November 17, 2008

That's right. It's a good thing some hospitals are closing. That might seem like a flippant, inappropriate, throwaway phrase, but I really mean it. Everything else is downsizing these days—except maybe the government bailout bill. That's what happens in a recession: We, as a country, retreat from our profligate ways and find new discipline that will serve us well when we come out of the economic malaise.

The truth is, recessions and business failures are necessary. That's tough to hear for all of us who are about half as wealthy as we thought we were this time last year—and we didn't really consider ourselves "wealthy" in the first place. But recessions provide an opportunity for bad businesses and bad business practices to get washed out of the system so that in the future, the strongest, most efficient businesses survive and thrive down the road.

My sources are admittedly anecdotal, but we've seen announcements over the past month that more than a dozen hospitals are simply shutting down rather than continue to bleed cash, hanging on by a thread in the hopes that reimbursements will eventually head higher or that the Obama administration will somehow save them from the hammer. Many of those in a precarious financial state are simply postponing the inevitable by selling their receivables, for instance, or raiding their investment funds in an attempt to hang on in an environment where loans and debt financing are extremely difficult, if not impossible, to secure for hospitals that don't have a credit rating.

This kind of retrenchment rarely happens in the hospital business—partly because hospitals are politically powerful, and partly because healthcare is local, and no one likes to see an organization that helped Grandpa recover from his heart attack or saved their premature baby go out of existence.

But things change. Evidence is mounting that we simply don't need so many hospitals in this country. State governments have said as much in New York and New Jersey, for example, and, as Lehman Brothers has so ably reminded us, if you can't count on the government for a bailout, you can't count on anyone.

Many of our regions are overbedded, and recent moves by many of the bigger players in the industry to streamline their business operations and diversify into outpatient markets, wellness services, and other efforts to build diversification have left a group of mostly standalone hospitals that can't compete far behind.

Many of the hospital leaders I talk to in the course of my job aren't in any danger of going out of business, to be sure. They're generally the folks who are largely getting it right—cutting back on money-losing services, getting better at collecting money that's owed them, diversifying away from the inpatient model, or reducing administrative headcount during tough times. But they won't tell you—at least not on the record—that we need many hospitals to go out of business to have a healthier industry going forward.

But I will. And I just did.


Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.
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