With fewer days' cash to work with than most middle-class households, Columbus Hospital, a small teaching facility in the heart of Newark, N.J., is negotiating a merger with nearby Cathedral Health Services.
In Camden, New Jersey's other major urban hub, Cooper Health System just announced plans to slash 400 jobs. The 10% work force reduction is intended to lift the teaching hospital out of the red.
Throughout the state and particularly in urban pockets, hospitals are conducting business on thin stores of cash and grasping for strategies to stem multimillion-dollar deficits. Merger talks are pervasive, but some of the proposed partnerships have not panned out.
"I think that economics will dictate relationships over the next six months to a year," says Ronald Del Mauro, president and chief executive officer of 10-hospital Saint Barnabas Health Care System in Livingston, N.J., the state's largest system.
The state recently formed an advisory commission to devise solutions to avert a crisis. The state Department of Health and Senior Services also is establishing a unit to help providers merge, restructure or convert to other uses.
"I think the HIP situation caught (state officials) off-guard," says Andrea Aughenbaugh, CEO of the 4,000-member New Jersey State Nurses Association in Trenton.
Aughenbaugh, who has been appointed to the 35-member commission, was referring to the insolvency and subsequent liquidation of HIP Health Plan of New Jersey, a North Brunswick-based HMO. Former Health Commissioner Len Fishman, who recently stepped down, was responsible for ensuring the quality of care patients received during the transition. Commissioner-designate Christine Grant, who is expected to take office in April, will chair the new commission.
"I think (state health officials) think this is their major issue this year-either mergers or closings," says Aughenbaugh.
Hospital upheaval in the Garden State largely reflects broader trends (Dec. 21-28, 1998, p. 2). Hospital executives nationwide blame the industry's nosedive on revenue reductions under the Balanced Budget Act of 1997, managed-care discounts, late payments from HMOs and increasing charity-care expenses.
Even stalwart providers have felt the economic pinch. Trenton-based Capital Health System, created through the 1997 merger of Helene Fuld Medical Center and Mercer Medical Center, lost $11.2 million in the first 11 months of 1998. According to Standard & Poor's, which lowered the system's bond rating this month to BBB- from A-, Capital Health has failed to achieve projected cost savings and efficiencies through the merger.
Saint Barnabas recorded a $52.5 million loss in 1997 on $1.6 billion of revenues. Since then, nearly 400 people have been cut from the payroll, and money-losing physician practices are being divested.
The fiscal condition of New Jersey hospitals is the worst it's ever been, according to the New Jersey Hospital Association (Jan. 4, p. 44). The association's latest report on hospitals' financial status shows the average total profit margin sank to 2.5% in 1997 from 4.2% in 1993-the year New Jersey deregulated hospital rates. Nationally, the average profit margin in 1997 was 6.6%, according to the American Hospital Association.
The margin on hospital operations in New Jersey stood at a barely break-even 0.8% in 1997, the NJHA reported. Urban and inner-city hospitals lost money on patient care, recording margins of -1.3% and -0.4% for the year, respectively.
Columbus Hospital, with a meager seven to 10 days' cash to keep the hospital afloat, has yet to close the books on a stinging 1997. Its audited numbers for the year were held up because of a Medicaid dispute with the state. Under a tentative settlement, Columbus must repay $10.5 million. It is expected to post a net loss of $16 million for the year, prompting Standard & Poor's to drop the hospital's bond rating to B from BB- in January.
Standard & Poor's says that if the Medicaid repayment schedule proves "particularly onerous," if audited numbers are worse than expected or if the proposed merger with two-hospital Cathedral "is not consummated quickly," the agency may thump the rating again-to CCC.
The heads of Columbus and Cathedral did not respond to interview requests. But Cathedral's own financial statements reflect the financial difficulty of acquiring a money-losing hospital. Cathedral's March 1998 bond offering statement shows an unaudited loss of $458,140 on operations in the first 10 months of 1997. During the same period, it racked up $8.8 million of bad debt and spent $26.9 million on charity-care services.
Cooper expects 1998 losses to top $8 million on revenues of $330 million. In addition to cutting 400 positions, acting President and CEO Leslie Hirsch intends to re-evaluate every program and service and to renegotiate managed-care contracts.
New Jersey does not have a public hospital system, but Cooper is often perceived as a charity-care hospital. Over the past five years, it has provided $110 million of uncompensated care, including charity care and bad debt, which has not been offset by state subsidies. "We're willing to do our share, but we cannot continue to be the receiving hospital for South Jersey," Hirsch says.