Published in: San Francisco Examiner, Sunday, April 9, 2000, page A-4:

"Bankruptcies Ravage Health Care."


Los Angeles Times

The powerful forces wreaking havoc on HMOs have begun to affect hospitals and the nursing home industry, where a wave of bankruptcies has begun amid predictions of many more to come.

The insolvencies have begun to spark massive consolidation and are likely to result in more closures of emergency rooms and trauma centers for treating critically ill and injured patients.

Consider these recent examples:

  • The nation's largest insurer, Aetna Inc., is showing such poor financial results that it has become a takeover target. Top executives have decided to split the company in half, separating its health care unit in a desperate bid to survive.
  • Harvard Pilgrim Health Care, one of the few HMOs that consistently has received high marks from patients, doctors and hospitals, has been forced into receivership by the state of Massachusetts.
  • Two of the nation's largest nursing home chains, Sun Healthcare Group Inc. and Vencor Inc., declared bankruptcy within weeks of each other last fall.
  • In Cleveland, where four of the region's leading hospitals are in bankruptcy, the high-level trauma center at prestigious Mount Sinai Medical Center has been closed and its teaching program shuttered.


    • Bankruptcies are becoming so common among hospitals, medical groups and nursing homes, for example, that a small industry has grown up around them, employing dozens of turnaround artists, investment bankers and attorneys.

    Last year, within the hospital sector, Moody's Investors Service issued 64 downgrades, and it has 19 institutions on a watch list of further reductions in their bond ratings. "We are expecting more bankruptcies," said Lisa Martin, who tracks nonprofit hospitals for Moody's.

    Like other organizations in the once red-hot health care arena, many hospitals are in trouble because they expanded too fast, buying competitors and taking on debt.

    At the same time, income was squeezed as health insurers and the federal government ratcheted down payments.

    At present, not one hospital on Moody's list of 500 nonprofits qualifies on its own for its AAA credit rating (a few have high ratings because they have purchased insurance policies on their bonds), and most hover near the bottom of what Moody's considers to be investment-grade securities.

    Others warn of more mergers and some shutdowns of hospitals and nursing homes over the next several years and continued rocky times for the entire industry.

    "I'm predicting that 800 hospitals will close in the next 60 months," said Thomas Prince, a health economist at the Kellogg Graduate School of Management at Northwestern University in Chicago. "And I see more nursing homes and health maintenance organizations going out of business than I do hospitals."

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