California hospitals expect to lose their six-year price freeze on electric rates within 90 days and are worried about the financial consequences.
Electricity deregulation is at least partly at fault, so a similar scenario could play out in other markets. Skyrocketing prices for electricity in recently deregulated California prompted the Public Utilities Commission to grant the state's two dominant electrical utilities an average rate increase of 15% for their large commercial customers. The California Healthcare Association, which represents nearly 500 acute-care hospitals, says it's been told not to count on its price freeze running through spring, much less until its scheduled expiration in 2002.
Hospitals are alarmed about how the change will affect their bottom lines.
"An increase in electrical rates will result in the reduction or closure of some hospital services and possibly the closure of some hospitals," the CHA warned in a Jan. 2 letter to state Public Utilities Commission President Loretta Lynch.
For example, a 10% rate increase will cost hospitals at least $75 million per year, according to the CHA.
One of the state's largest hospital systems, San Francisco-based Catholic Healthcare West, said it has just begun to study how utility rate increases will affect its finances. So far, the system's 274-bed San Gabriel (Calif.) Valley Medical Center projects a $250,000 increase in its electricity budget for the first six months of this year, compared with the same period in 2000.
"The average hospital in California is already operating in a negative margin, so any rate increases will come right from their bottom line," said Jim Lott, executive vice president of the Healthcare Association of Southern California, a Los Angeles-based hospital lobby.
Hospitals that buy their electricity on the open market instead of contracting with a utility already might be spending triple what they did just months before, Lott said.