There are few reasons to be optimistic that Hoboken University Medical Center can return to profitability this year. We know the hospital suffered a 4.3 M dollar operating loss, but that is not the whole story. There are two ways that the hospital could be forced to close within the next year, causing an interruption of services, or triggering the 52 M dollar loan guarantee given by the city.
Do not rely on Hoboken taxpayers to get you out of your mess! Added to the 4.3 M loss is a depreciation expense of 4.6 M and interest of 2.2 M, totaling over 11 M. Accounting rules state that depreciation and interest are separate from "operating losses", but this is an accounting fiction. It will be necessary to borrow when repairs inevitably must be made. Interest expense is also real and is being made up for by borrowing yet more money. Borrowing has gotten harder.
Last November, due to these losses, the hospital needed cash. Unable to get long term financing, the authority issued 9.7 M dollars of short term debt due this May. The hospital kicked the can down the road until after the municipal elections. Now, credit markets are worse, and Hoboken's credit – upon which the hospital relies – is worse too. If the hospital cannot roll over the debt before May, the city could be called upon to pay 9.7 M dollars in cash or close the hospital.
Higher taxes, anyone? In addition to borrowing, hospitals can obtain financing by putting off its vendors until cash comes in - they hope to put off the day of reckoning. The HUMC’s accounts are 90 days overdue – the statewide average is 60 days. Vendors eventually become unwilling to deal with the hospital, stopping its operations. The hospital assures me that they are not having this problem yet.
So what is going wrong? New Jersey hospitals must provide medical care to everyone, regardless of their ability to pay, but the state "Charity Care subsidy" has changed. The HUMC will be getting as much as 3 M dollars less from the state in 2009 than in 2008. At the same time, more people than ever do not have health insurance. The HUMC's plan is to reduce non-essential staff and pay the doctors less. We hope that the quality of care will not suffer.
These discouraging difficulties raise the specter of closure, but closure isn’t all bad. A nearby regional hospital could operate the new emergency room. This should comfort those who fear that traffic could delay life saving treatment for residents. In fact, patients would probably achieve a better standard of care in regional hospitals with more resources. The city should not keep the hospital open at any cost when other alternatives exist. If the hospital administration is unable to turns things around, don’t ask the taxpayers to foot the bill – it is not the only answer.