“Nobody isaccountable for identifying the hospitals that are needed for thepublic,” says one expert. “There is no free market and there is nogovernment accountability.” (Photo: Shutterstock)

Before health care investor Joel Freedman shutters themoney-losing hospital he controls in the heart of Philadelphia, hemust craft a plan to remove all the street signs that direct peopleto its emergency room.

Medical care, emergency or not, will no longer be available atHahnemann University Hospital under a proposal being consideredthis month by the federal judge overseeing the bankruptcy of the171-year-old institution and its parent company.

The plan, which faces significant opposition, has raisedquestions about where the people who rely on Hahnemann will betreated. It also highlights the financial stress urban hospitalsface, operating in a health care system that pushes administratorsto compete for patients with high-quality private insurance. Inrural areas, the situation is even worse.

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“This is a symptom of the underlying anarchy that pervades U.S.health care,” Alan Sager, a professor of health law, policy andmanagement at the Boston University School of Public Health, saidreferring to the plan to shut Hahnemann. “Nobody is accountable foridentifying the hospitals that are needed for the public. There isno free market and there is no government accountability.”

Freedman didn’t respond to requests for an interview.

Closure opposition

Hahnemann’s ER serves about 56,000 people a year — more than 150a day — many of whom are low income. It also runs the city’s onlySexual Assault Nurse Examiner program, which employs nurses who aretrained to collect evidence.

If Hahnemann’s closure is approved, patients are likely to berouted to some of the more than a dozen other hospitals in the cityof 1.6 million. The plan doesn’t mention that some of those medicalcenters are on financial life support themselves, struggling withthe same economic forces that brought down Hahnemann just 18 monthsafter Freedman’s company bought the group.

A few miles away, another leading Philadelphia medical group,Temple University Health System, is in the midst of an out-of-courtrestructuring led by bankruptcy consultant Alvarez & MarsalInc. As part of that effort, Temple has considered selling itswell-regarded cancer center to Thomas Jefferson University, whichruns a downtown Philadelphia hospital not far from Hahnemann.

Constant losses

Hahnemann has posted operational losses every year from 2004 to2018, a “remarkable” record, said Sager, who reviewed publicdocuments kept by Pennsylvania on hospital finances. Theinstitution has a “fairly high” share of Medicare and Medicaidpatients, which typically don’t pay the full cost of their care,Sager said.

Local and state regulators oppose the proposal to closeHahnemann. They have asked U.S. bankruptcy judge Kevin Gross toreject the closure plan, arguing it doesn’t provide enough detailsabout how patients will be relocated and their recordspreserved.

Gross has ordered the company to talk to state and localofficials about the closure plan in detail, and warned that he“does not want to hear that discussions were limited or did nottake place.”

A hearing on the plan is set for July 19.

Hahnemann’s parent, Philadelphia Academic Health Systems LLC,says there is no alternative. The hospital simply can’t keep losingmoney. In 2008, Hahnemann’s pre-tax loss exceeded $69 million on anunaudited basis, court papers show, and in March that loss topped$5.8 million.

Balancing act

Hospitals thrive if they can attract enough patients withhigh-quality, private insurance to offset the uninsured and thepoor who rely on government programs like Medicaid, according toMarshall Glade, a senior managing director with the GlassRatnerfinancial consultancy. The trick, he says, is to treat enoughpeople with private insurance to cover losses imposed by Medicaid,which typically pays about 70% of the actual cost of treatment.

Urban hospitals also may develop a reputation for serving theindigent that makes it hard to attract wealthier patients, Gladesaid.

“Your private insurance folks may go to those other hospitalsbecause it’s perceived that the other hospital is better, isnicer,” he said.

Sager’s research shows that patient race is a key factor in thefinancial health of U.S. hospitals. Those primarily servingAfrican-American communities have historically been more likely tobe shut down.

After whites moved out of many cities, their doctors left thebig urban hospitals and followed them to the suburbs, Sager said.That led to the closure of many city hospitals in the 1970s, 1980sand 1990s.

Rural woes

The trend for hospitals in rural areas shows that they are ineven worse shape than their city counterparts. Rural hospitals havelower profit margins and serve poorer, less insured people thanurban ones, according to a 2016 study from the University of NorthCarolina at Chapel Hill. In the five years through 2017, 64 ruralhospitals closed compared with 49 in urban areas, according to theU.S. Government Accountability Office.

It is unusual for a big, university-affiliated hospital likeHahnemann to close. Strong community and political support ofteninsulates such institutions from the funding woes that haveafflicted so many U.S. hospitals in recent years, Sager said.

Founded in 1848, Hahnemann employs about 2,500 people andoperates as a teaching hospital for Drexel University College ofMedicine with more than 570 medical students in residency. Ittrains about 500 rotating medical students and 800 nursing studentsannually.

Hahnemann’s corporate parent, Philadelphia Academic HealthSystems, and its affiliates filed for bankruptcy on June 30. TheChapter 11 filing came just 18 months after the group, which iscontrolled by Freedman, took on at least $68.5 million in debt tobuy two hospitals from Tenet Business Services Corp.

St. Christopher’s Hospital for Children, the other hospital, isprofitable, attracting pediatric patients from throughout theregion surrounding Philadelphia, according to court papers. St.Christopher’s will be restructured and sold in order to exitbankruptcy.

The case is Center City Healthcare, 19-11466, U.S.Bankruptcy Court, District of Delaware (Wilmington)

Read more: 

• Rural hospitals bank on outsideinvestors
• NYC’s healthcare-for-all collides with hospitalsbleeding cash
• Hospital closings average 30 peryear

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