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Hospitals change focus of their services

Fewer elective surgeries and a tighter credit market affect hospitals' cash flow

POSTED: November 12, 2008 5:00 a.m.
Tom Reed/The Times

The new imaging center under construction at Northeast Georgia Medical Center should not be affected by the recent credit crunch, officials say.

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The worsening economy has been tough on businesses of all types, including hospitals.

It’s not that there’s a shortage of customers; people will continue to get sick regardless of what happens to the economy. But when customers can’t pay their bills, a hospital runs into trouble.

“Some people think that health care is recession-proof,” said Kevin Bloye, spokesman for the Georgia

Hospital Association. “But when people lose their jobs, they’re uninsured, and they end up in our ERs.”

Bloye said some Georgia Hospital Association hospitals are affected more than others.

“Some of our members have had to lay off employees,” he said. “There are rural hospitals that are struggling just to meet payroll.”

Emergency departments are big money-losers for hospitals because they’re required by law to treat emergent patients regardless of ability to pay.

To make up for that loss, hospitals often rely on services that can turn a profit, such as elective surgeries.

But with the economy deteriorating, many patients are deciding to postpone operations. Instead of replacing an arthritic knee, for example, they may try to hobble around for another year and hope the economic situation improves.

That’s bad news for hospitals. “Elective procedures are one of the most profitable areas hospitals have,” said Bloye.

One way they’re coping is to focus on life-threatening conditions such as cancer and heart attacks, where putting off treatment is not an option.

“We have become a destination for health care services that people really do have to have,” said Cathy Bowers, spokeswoman for Northeast Georgia Medical Center.

The Gainesville hospital’s Ronnie Green Heart Center, ranked No. 1 in Georgia for the quality of its cardiac care, still draws plenty of customers and gets relatively generous insurance reimbursement.

Hospitals also put a lot of effort into marketing their maternity services. Almost every pregnant woman intends to give birth in a hospital, and unlike a sick person, she has more control over which hospital she goes to.

Officials at Northeast Georgia Medical Center hope the $50 million Women & Children’s Pavilion, which opened last week, will attract expectant parents who’ve never been to the Gainesville hospital before.

Obstetrics is considered a key entry point into a health care system. Child-bearing couples may be young and healthy now, but if they have a positive experience during the birth of their baby, they’ll tend to return to the same hospital in the future when they become sick.

But that’s a long-term strategy. Some hospitals are more concerned with just keeping the doors open another day.

“The economic trend for hospitals has been downward for quite a few years now,” said Bloye.

He said hospitals have had to adjust to shrinking reimbursements from Medicare, Medicaid and private insurance. But a greater worry is uncompensated care for patients who have no insurance at all. As unemployment rises, so does bad debt, as customers are unable to pay their bills.

Bloye said in the past, hospitals tried to deal with this by earning income through other means, such as investing in financial markets. But with the collapse of Wall Street, that’s no longer a profitable option.

“For hospitals, like any other business, investment income is important,” said Bloye. “When you don’t have that, it’s difficult to offset your losses.”

Hospitals are also being squeezed by the credit crunch. If they can’t borrow money, they may not be able to pay for major projects such as building expansions.

Habersham Medical Center in Demorest is putting the final touches on a $38.6 million expansion, and hospital president Dick Dwozan said he feels like they dodged a bullet by obtaining financing before the economy went sour.

“We were ahead of the game and totally escaped any harm,” he said. “We secured a good interest rate.”

In fact, Dwozan said the hospital may actually have benefited from the economic downturn. Prices for commodities such as steel had gone sky-high because of demand in rapidly developing nations like China.

But now that the global economy is cooling off, the cost of materials is going down.

The Habersham project is being paid for through an issue of county-backed revenue bonds, Dwozan said.
Northeast Georgia Medical Center is also completing a $300 million expansion that includes the Women & Children’s Pavilion, the North Patient Tower and a new Imaging Center in Gainesville, as well as a medical office building in South Hall.

These projects have been in the works for several years and were financed while the economy was still healthy. But the hospital is still making payments on earlier expansion projects, similar to a homeowner spending 30 years paying off a mortgage.

“We absolutely are impacted by the credit crunch, even though (our credit worthiness) is A-plus rated,” said Jim Gardner, president and CEO of Northeast Georgia Health System.

“This summer, there were times when our interest rates were far higher than what we had budgeted. On Aug. 15, we completely refinanced the hospital’s outstanding debt, to bring more stability. That successfully dropped our interest rates.”

However, this action came at a price. “The refinancing cost several million in fees, and we had to write off several million in bond insurance,” Gardner said.

But he feels fortunate that the medical center is not trying to apply for a loan right now.

“There are some major hospitals around the country that were frozen out of the credit market,” Gardner said. “It’s all about access to capital. I think you’re going to see smaller health care systems partnering with stronger ones. Lenders see larger systems as inherently less risky.”

Case in point: Sumter Regional Hospital in Americus recently announced it will turn over control of its operations to Phoebe Putney Health System in Albany.

Sumter Regional’s main hospital building was destroyed by a tornado on March 1, 2007. Under the proposed partnership, Phoebe Putney will agree to pay at least $25 million toward construction of a replacement hospital.

Sumter Regional president David Seagraves said without this arrangement, it would not be possible to rebuild the hospital.

“In today’s health care market, it is increasingly difficult for small and mid-sized hospitals to maintain their independence,” he said.

As the largest hospital north of the metro Atlanta area, Northeast Georgia Medical Center is financially sound and is not facing such problems. But a challenge looms ahead. The health system wants to build a new hospital on its South Hall campus near Braselton.

“It’s a $200 million investment,” said Gardner. “We will have to be able to access the debt market. I’m not too concerned about it at this juncture. But we need to have our financial planning done by December 2009.”

Like everyone else, hospital officials are hoping the economy will improve by then.



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