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Valley hospitals feeling the pain

The nation's economic bad health is creating financial aches and pains for hospitals in the central San Joaquin Valley and across the state.

More patients without insurance are showing up in emergency departments for care, and more who have insurance are struggling to pay out-of-pocket medical costs, hospital officials say.

At the same time, hospitals have seen their investments shrink in the turbulent stock market, making it harder to turn a profit. And the tight credit market makes it almost impossible to borrow money to complete or start building projects or to purchase expensive new equipment.

A recent survey of California's 430 hospitals by the California Hospital Association showed that more than two-thirds had seen a moderate to significant effect on their finances from the faltering economy.

"It's a tough time, and the future looks pretty gloomy for the industry," said Stephen Walter, chief financial officer for Community Medical Centers.

Little optimism

There is little reason for Valley hospital executives to feel optimistic. Jobless rates -- 11.4% in Fresno County and 11.8% in Tulare County -- are only expected to increase in the coming year, leaving more people without health insurance.

People who are out of work are asking for help, said Chris Fontes, in charge of patient financial services at Kaweah Delta Medical Center in Visalia.

Requests for financial assistance to pay bills have jumped 40% in the last six months at his hospital, he said.

"We used to get 30 to 40 applications a week," Fontes said. "Now we're receiving 60 to 100 a week."

It's the same at nearby hospitals.

"We're finding there are more patients coming in asking to extend payments or skip payments," said DiAnn Spence, director of patient financial services for Adventist Health Services, which owns Hanford Community Medical Center, Central Valley General Hospital in Hanford and Selma Community Hospital.

Unpaid medical bills are up about 12% this year, Spence said. And the amount of charity care being written off each month is up 17% so far from last year to this year, she said.

Patients aren't paying medical bills because "they're trying to save their homes from going into foreclosure," Spence said.

Care isn't cheap

Treating patients without insurance is expensive for hospitals, said Gary Herbst, senior vice president and chief financial officer at Kaweah Delta.

Kaweah has seen a 3% increase in people without insurance in the past six months, from 6% of the total patient population to 9%, Herbst said. That increase alone means about a $3.5 million loss in revenue for the hospital, he said.

Saint Agnes Medical Center in Fresno has seen its bad debt expense increase by about 8%.

Some of the increase at Saint Agnes is driven by a rise in the number of uninsured patients in the emergency department, hospital officials said.

At Community Medical Centers, the largest health-care system in the Valley, emergency doctors are treating more patients without insurance. The company's charity care for the medically indigent and people unable to pay bills increased by $16 million from 2007 to 2008. But the hospital has noticed another trend: More people with insurance are unable to pay their part of the bills.

Employers are asking employees to be responsible for more of their health-care costs, Walter said. Some workers may have to pay $3,000 to $5,000 for health services before insurance begins to pay, he said.

And when workers are laid off, they're responsible for paying the premiums to continue their insurance coverage. Many can't afford to do so, Walter said. So Community has paid the premiums for unemployed workers who need surgery or are staying in the hospital, he said.

A statewide problem

California hospital officials say the recession's effect on Valley hospitals reflects what is happening statewide.

No hospital in California is immune, said Jan Emerson, vice president of the California Hospital Association.

The association's survey found a 33% increase in emergency department patients without insurance, and 73% of patients were having trouble paying out-of-pocket costs, such as copayments and deductibles. A formal report is expected to be released in the next couple of weeks.

A nationwide survey by the American Hospital Association had similar findings. Half the hospitals have seen a moderate to significant increase in uncompensated care, with the increase averaging 8%.

There also is less to offset the increases in bad debt being carried by hospitals.

The association survey showed a 30% decrease in elective surgeries and elective procedures, which are big money-makers, Emerson said. Nationwide, 67% of hospitals saw some drop in elective procedures -- and for 6%, the drop was significant.

A credit squeeze

On top of that, hospitals said the nationwide credit crunch has put a squeeze on their finances. Hospital investments have taken a tumble on the stock market see-saw. Overall, 69.2% of California hospitals said they have lost moderate to significant value on investment holdings.

Nationwide, profit margins for hospitals decreased from an average of 6.1% in the third quarter of 2007 to an average loss of 1.6% in 2008's third quarter, according to the American Hospital Association survey.

Kaweah Delta, for example, expects to lose money on its investments for the first four months of this year.

The district hospital is prohibited by law from investing in the stock market, but it invests heavily in the bond market, which has been severely hit over the past several months, Herbst said.

The hospital's investments in the devastated financial sector have crumbled in recent months, he said. "Nineteen million of our investment portfolio is in financial institutions and bonds issued by them," he said.

Despite the losses, Kaweah Delta is treading water, Herbst said. "We're in a lot better shape than many hospitals," he said.

The hospital has not had to cut services -- and doesn't have plans to do so. After eliminating 145 full-time jobs in June because of a reduction in Medi-Cal payments, it hasn't had to do more, Herbst said. "But we certainly are managing our labor force very, very carefully," he said.

The hospital also is continuing with an expansion to the north side of the facility, Herbst said.

No loans

Investment losses are only part of the dark financial picture for hospitals.

Hospitals that need cash to make payroll and to pay other expenses while waiting for reimbursements from insurance companies -- or to expand -- can't borrow money.

The hospital industry as a whole doesn't have a good credit rating. Standard & Poor's and Moody's both recently downgraded hospitals from stable to negative, a credit score that makes it nearly impossible to borrow.

The California Hospital Association survey found 26% of hospitals are unable to get capital for construction projects. Nationwide, 56% are reconsidering or postponing renovations or expansions, and about 40% are delaying the purchase of equipment.

Hospitals that started projects before the economy tanked are lucky. Sierra Kings District Hospital, for example, sold $16 million in bonds in July 2007.

"I think we'd have major challenges if we were trying to sell them today," said Barbara Jennings, chief financial officer.

Community -- which owns the regional medical center in downtown Fresno, Fresno Heart and Surgical Hospital and Clovis Community Medical Center -- is up for a credit review soon with Standard and Poor's, Walter said.

The hospital hopes to borrow money next year to triple the size of Clovis Community, he said. A negative credit score could hurt those plans, he said.

By its sheer size, Community is in better shape to handle an economic downturn than other hospitals in the area, Walter said. Plans to build a $25 million ambulatory care clinic are on track, for example. "We're growing and we're building," he said.

A Valley issue

But overall, hospitals in the Valley are more at risk from a flailing economy than hospitals in large urban areas, Walter said. Valley hospitals depend more on reimbursements from Medi-Cal, the state-federal insurance for the poor, he said.

Community negotiated a Medi-Cal contract that will continue until 2011. It was lucky, Walter said. Hospitals with Medi-Cal contracts that expire this year will have a tough time getting a good deal, he said. California faces a $41.8 billion deficit by 2010.

Emerson of the California Hospital Association is keeping an eye on state budget negotiations. The association understands the depths of the state and federal economic free-fall, "but you can't only cut your way out of this dilemma," she said.

She expects hospitals will struggle more with shaky financial bottom lines in the coming year. And many could be facing tough decisions, she said.

They may have to cut services -- which could include layoffs and pay adjustments, she said. "I can't say these are all going to happen, but these are things hospitals are having to weigh."

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