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The hospitals most likely to close

February 27, 2015

    Dan Diamond, Executive Editor

    More patients. More jobs.

    More money flowing into health care.

    On the surface, the Affordable Care Act's changes should have led to boom times for hospitals. And for some organizations, it has.

    But the picture isn't so rosy across the board, especially as we move away from last year's coverage expansion boomlet.

    "Many hospitals across the country are reaching a crossroads," Melanie Evans wrote this week in Modern Healthcare.  

    "Hospitals face closures as 'a new day in healthcare' dawns."

    A changing landscape for hospitals

    What's behind that "new day"? A confluence of factors, led by the burgeoning retail movement in health care and patients' increased willingness to seek care in non-traditional settings. 

    How our experts are thinking about health care's 'retail revolution'

    That's led to a dip in inpatient utilization, which is starting to affect hospitals' financials. (A recent federal analysis found U.S. hospital spending dropped 3.6% in 2013, and hospital discharges dropped 1.4%.) And it's forcing health systems to pare back, as they realize they have excess capacity. UPMC, for instance, is cutting more than 8% of its inpatient beds.

    Those market pressures are also one reason why more hospitals are partnering up, creating new alliances or even forming super-systems. 

    As Evans points out, the hospitals that are most likely to suffer—or even shutter—in 2015 tend to be the hospitals left out of those arrangements, which include:

    • Small standalone hospitals: They lack consolidation options and resources, especially when seeking to make improvements in their aging facilities. And about half the hospitals that closed in 2014 operated an average of roughly 60 beds, Evans points out. 
    • Academic medical centers: These high-profile organizations tend to have much higher costs than the average hospital, given their research aims. (You can see more on the future of AMCs in today's Daily Briefing.)

    The gap between for-profits and not-for-profits

    I thought Moody's latest report inadvertently revealed one of the flash points in the industry, too.

    The ratings agency's current outlook for the not-for-profit hospital sector is negative. Moody's isn't optimistic about the sector's fundamentals. "Growth in operating cash flow will be weak, operating margins will continue to narrow, and revenue growth will remain limited," the ratings agency predicts.

    But a Moody's report released on Thursday projects that the for-profit hospital sector will be "stable" in 2015. There's an explanation for that gap, and I'll be focusing on the reasons behind it in Monday's Daily Briefing.

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