Public hospitals can't always get government reimbursement for the growing number of patients they treat who don't have adequate insurance. And for those who do have insurance, their carriers often do not pay the prevailing rate for the services.
Making the situation even more difficult is the increasing competition from specialty clinics that rake in profits by focusing on specific services, like MRIs and cat scans.
A study from the New Jersey Hospital Association released on Dec. 4 reported that almost 40 percent of New Jersey hospitals posted a loss in 2005.
"That number will only grow unless some major changes are made in charity care funding, along with adequate payments from other key players," NJHA President Gary Carter said last week.
Area hospitals are trying to adapt by improving technology, touting the most profitable departments, and cutting redundant services - but hospital administrators worry whether hospitals will be able to continue helping everyone who needs help in the long-term.
"In less than five years," predicted the head of Bayonne Medical Center recently, "there will probably be three or four acute care hospitals in all of Hudson County, unless there is a dramatic change."
There are currently eight acute care hospitals in Hudson County.
The burden of 'Charity Care'
Since 1978, the state of New Jersey has required hospitals to provide medical treatment to everyone who walks into the emergency room, regardless of their ability to pay.
According to a recent report from Price water house Coopers Health Research Institute, the amount of free health care provided by U.S. hospitals to poor and uninsured Americans rose to $27 billion last year, up from $20.7 billion in 1999. That's a 30 percent increase.
The costs of charity care are shared by hospitals and federal matching funds provided to the state. But hospital administrators believe that the burden on hospitals is just too great, especially considering that some patients who cannot pay for treatment are ineligible for any type of state or federal assistance, because of their income.
There is a sizable portion of the population that makes enough money not to be considered charity cases but doesn't earn enough to afford insurance. This group of people is commonly referred to as the underemployed.
Jersey City's hospitals show symptoms
While the toll of charity care cases has affected all Hudson County hospitals, Jersey City has been hit the hardest. There are three hospitals operating in Jersey City: the Jersey City Medical Center on Grand Street, Christ Hospital on Palisade Avenue, and Greenville Hospital on Kennedy Boulevard.
St. Francis Hospital and the Franciscan Home and Rehabilitation Center in Jersey City were closed in the last few years.
Jersey City Medical Center has averaged $77 million in charity care expenses per year for the past three years, but the Medical Center only received a little over $52 million in state and federal charity care funds last year.
In October, former Jersey City Medical Center head Dr. Jonathan Metsch stepped down after a report called for cutting staff and various services, as well as attracting more private care physicians and a better-paying clientele.
According to Metsch, the hospital needed $3 million more in aid per month in order for the hospital to continue to operate.
George Whetsell is the founder and principal of Wellspring Partners, the management consulting firm that wrote the report. His firm specializes in performance improvement services for hospitals. Whetsell said in a recent interview that 64 percent of the patients at Jersey City Medical Center rely on Medicaid or charity care.
"There are just not enough [paying] patients," Whetsell said.
Whetsell also said there was not enough money coming from other sources such as Medicare and managed care programs.
Insurance companies squeeze
Also posing a problem are health insurance companies and health maintenance organizations that are not fully compensating hospitals.
Peter Kelly, the president and CEO of Christ Hospital near the Jersey City/Hoboken border, said recently that insurance companies are making record profits at the expense of hospitals.
"Insurance companies now negotiate how much they pay out," Kelly said. "We are forced to come to an impasse as we sit down with the managed care companies and negotiate."
Kelly continued, "The insurance company will send back the claims, and we have to go out and challenge that claim."
Robert Evans, CEO and President of Bayonne Medical Center, said that Medicare lowered BMC's reimbursement rate October. This resulted in more than $1 million less per year for BMC.
"Community hospitals are truly under siege from powerful forces which affect our costs and reimbursements," Evans said.
Evans said that the forces threatened the Bayonne Medical Center's very existence.
Competition from smaller clinics
Another part of the problem is each hospital's high overhead. Hospitals must maintain whole departments and pay for staff, staff benefits, and facility operational costs.
Competition from smaller venues - such as neighborhood medical offices - drains potential customers so that the hospitals get fewer patients in many areas rather than more.
The smaller medical services establishments have significantly lower overhead because they only have to offer profitable services.
Adjusting and adapting
Bayonne Medical Center is another area hospital that is making difficult decisions in the face of the changing economic climate.
According to statistics issued by BMC, admissions have dropped by 25 percent since 2004. Some reasons for the drop off in admission include the success of smaller area clinics and a change in the overall demographics of Bayonne.
"This translates into millions of dollars of reduced revenue for the hospital," Evans said last week.
To adjust to this, the hospital reduced staff in 2000 and again within the past year. The hospital administration has also developed a seven-year strategic plan, which focuses on improving the hospital's core services such as radiology, labs, and the emergency room.
Recently, the hospital began cutbacks that included closing down areas that cost too much and directing patients to other nearby facilities.
"More often than not, this means making very difficult decisions year in and year out," Evans said.
The hospital has also invested in new technology that smaller clinics could not provide, and negotiated a bigger percentage increase from insurance companies and other medical finance providers.
BMC also introduced new clinical procedures such as angioplasty with the hope of drawing new patients to hospital.
BMC also negotiated with suppliers to reduce costs. Most recently, BMC has sought to purchase St. Vincent's Hospital across the water in Staten Island, so both hospitals can make purchases and reduce costs other ways.
Other proposed solutions to the current fiscal situation include opening a new skilled nursing home facility that would recapture many of the patients currently lost to other nursing homes; restructuring bonds in order to cut out high-cost, short-term debt; and increasing the capacity of the operating room to handle highly profitable cardiovascular procedures.
"There have already been two hospital closing in our county, and there will be a statewide analysis done to advise more in the future," Evans said. "In less than five years, there will probably be three or four acute care hospitals in all of Hudson County, unless there is a dramatic change in hospital funding."
But Evans predicted BMC, which was established in 1888, would survive.
"BMC has always made the difficult decisions, and have continued to act decisively and evolve clinically," he said.
Evans said the problem is not just local, and that there is "a bleak outlook" nationally for community hospitals.
One study showed that of the 440 hospitals that closed in the United States during the 1990s, 340 were short-term acute care facilities like Bayonne Medical Center.
Gov. Jon Corzine recently asked for a commission to look into possibly closing as many as 25 hospitals in New Jersey, due to New Jersey's longstanding budget problems.
The commission would look at where such facilities are located and how their area of operations may conflict with other nearby hospitals.
Corzine told the Philadelphia Inquirer in October, "We need to take a thoughtful look at whether all our hospitals are necessary, whether they are suitably located to meet health care needs, and whether state funding is properly distributed among them."
In Hudson County, in the past year, St. Francis Hospital and the Franciscan Home and Rehabilitation Center in Jersey City closed.
Trying to buck the trend
While hospitals in Jersey City and Bayonne are struggling, one actually came close to closing recently - St. Mary Hospital on the west side of Hoboken.
St. Mary, built in 1863, is the oldest acute care medical hospital in Hudson County. But the hospital's owner, Bon Secours Health Care Systems, a private Catholic health care company based in Marriotsville, Md., announced at the beginning of this year that St. Mary was on the verge of closing because of massive operational losses.
Ever since Bon Secours acquired the hospital more than six years ago, it has lost approximately $118 million. Over the past year it has been losing between $1 and $3 million a month.
The city of Hoboken got permission from the state to take over the hospital and run it under an autonomous city agency called the Hospital Authority.
Bon Secours is currently negotiating to transfer the ownership of the hospital to Hoboken. The city hopes to close on the hospital by Jan. 1, 2007.
St. Mary Hospital CEO and President Harvey Holzberg, a noted hospital turnaround guru, is hopeful he can guide a successful rebound. Holzberg made a name for himself by overhauling Robert Wood Johnson University Hospital, which, when he took over in 1989, was struggling financially much like St. Mary Hospital today.
According to Holzberg, because St. Mary will be a city-owned hospital, it is eligible for disproportionate state aid, which means that St. Mary Hospital with get a higher rate of reimbursement for charity and Medicare cases.
One of the reasons that St. Mary has been suffering financially is because it has treated so many charity cases. According to hospital officials, this additional funding is estimated to be $20 million in the first year, including $4 million in state appropriations.
But there are still some taxpayers questioning the city's ability to turn the hospital around, especially in light of the recent struggles of other county and state hospitals.
There are also a sizable number of residents who are worried that they could be stuck paying for cash shortfalls and capital improvements.
Forty percent of New Jersey hospitals posted a loss in 2005.