Small California Hospitals Closing; Trend Likely To Continue

Nearly 100 California hospitals have closed since 1996 as small and rural facilities face increasing overhead costs and difficulty brokering deals with private insurers, and experts say the trend is likely to continue, U-T San Diego reports.

Details of Challenges Facing Calif. Hospitals

Independent and rural hospitals often have difficulty maintaining up-to-date equipment and technology, according to U-T San Diego.

In addition, John Romley, a health care economist at the University of Southern California's Schaeffer Center for Health Policy and Economics, said such facilities also can face barriers to obtaining favorable rates from private insurers.

California Hospital Association spokesperson Jan Emerson-Shea added that low reimbursement rates from Medicare and Medi-Cal, California's Medicaid program, make it difficult for all hospitals in the state generate enough revenue to cover treatment costs. She said, "Hospitals lose about 40 cents on the dollar for every Medi-Cal patient they treat. Medicare is better, but we still lose money."

Glenn Melnick, an economist at USC, said small and rural facilities also often lack connections with larger physician groups that could provide them patient referrals.

Trend Likely To Continue, Experts Say

Melnick said, "Smaller and independent hospitals are going to continue to fall by the wayside," adding, "This trend will accelerate because you've got to be part of a big network that has deep enough pockets to bear that risk."

For example, the Fallbrook Healthcare District's Board of Directors last week voted to halt admissions to Fallbrook Hospital on Nov. 17 and create an alliance with Palomar Health and Tri-City Medical Center to provide outpatient services.

Experts say the Affordable Care Act has increased pressure on hospitals to further reduce costs. For instance, the federal government is testing payment models -- such as capitation agreements and bundled payments -- that tend to be more feasible for larger facilities because they can shoulder larger financial risks, according to U-T San Diego.

Romley said, "People certainly do believe that the forces set loose under the [ACA] are going to lead to more and more consolidated care" (Sisson, U-T San Diego, 10/11).