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  • Writer's pictureThe San Juan Daily Star

More hospital bankruptcies, consolidations expected, think tank says



From left, Rafael Nieves Pérez, an audit partner at Galíndez LLC; Julio Galíndez, a consulting partner at Galíndez LLC; and Estudios Técnicos Inc. President Graham Castillo

By The Star Staff


Faced with a challenging panorama of contraction of its services with 80,000 fewer patients in the past six years, bankruptcies, and a reduction of employees and beds, the hospital industry in Puerto Rico faces enormous challenges.


A process of further consolidation of hospitals, protection and restructuring under bankruptcy court procedures and alliances with other sectors of the health industry that allow their economic strengthening and operational stability is anticipated, according to an analysis by Estudios Técnicos Inc. (ETI) and authorized public accounting firm Galíndez LLC.


The analysis is part of the report “Hospital Industry: Its Market and Financial Situation” prepared by ETI with the collaboration of Galíndez LLC.


To prepare the report, the ETI developed a big data tool, which processes and transforms data from the financial statements of all hospitals in Puerto Rico and the mainland United States for the past 12 years. The financial statements are submitted by hospitals to the federal government’s Center for Medicare and Medicaid Services. The validation of the report was conducted by Galíndez LLC.


Several hospitals and hospital systems such as San Jorge Children’s Hospital and Grupo HIMA have filed for bankruptcy and more hospital bankruptcies are expected.


ETI President Graham Castillo stated that “one of the main factors affecting the financial health of hospitals is the reduction and aging of the population in Puerto Rico.”


The change in the demographic structure of the island has two important impacts: first, it reduces the number of patients and second, it reduces the profitability of the hospital because it is more expensive to serve the health needs of older adults, the fastest growing population group in Puerto Rico,” he said.


Julio Galíndez, consulting partner at Galíndez LLC, highlighted that “the recent events where hospitals have had to resort to the financial protection of the bankruptcy court lead us to conclude that they are not isolated events.”


“We understand that a consolidation process will soon take place when already established hospital systems acquire or merge other hospitals into their systems,” he said. “In the recent case of the HIMA-San Pablo Group, we see how the Metro Pavía Group acquired the HIMA hospital in Caguas, how Auxilio Mutuo acquired the HIMA hospital in Bayamón, and how Caribbean Medical acquired the HIMA hospital in Fajardo. We do not rule out that in the near future or medium term that other hospital entities seek the protection provided by the bankruptcy court and end up being part of a health system or end up with a new ownership structure, as was the case of the HIMA Humacao Hospital and recently the San Jorge Hospital.”


The reasons for the challenging financial situation of hospitals in Puerto Rico are varied.


“The hospital sector faces uncontrollable external factors that will define its role in providing essential health services in the future,” the ETI report said. “Other external factors that present challenges for the hospital sector are: clinical models of service delivery where outpatient treatment is emphasized; the evolution of pharmacological technology toward medications that replace a hospital-level health service; a financial compensation structure at the primary care level that encourages not referring patients to hospital care; and a rate system where the hospital does not participate in the process of establishing payment rates.”


Among the data on Puerto Rico’s hospital industry, collected by ETI’s new digital tool, Castillo mentioned the following:


* The bed occupancy rate was reduced in Puerto Rico, between 2013 and 2022, by more than 12 percentage points, from 74.1% to 62.26%. In contrast, in the mainland United States the bed occupancy rate increased in the same period from 49.1% to 53.2%.


* For 2021, 80,000 fewer patients were treated than in 2016. In 2016, 336,929 patients were treated and in 2021, 257,528 were treated.


* The economic loss factor of hospitals in Puerto Rico is greater than that of institutions in the mainland U.S. Puerto Rican hospitals have lost an average of 5.6% of their patient services income in six years, compared to a loss on average 1% in the U.S.


* The number of hospital employees on the island decreased by almost 6,000 between 2016 and 2021, from 31,263 to 25,416.


* The reduction in hospitalization also occurs in the United States, but in Puerto Rico it occurs to a greater extent. In 2016, 9,329 hospitalizations were recorded per 100,000 inhabitants and this decreased to 7,585 in 2021, a total of 1,744 fewer people hospitalized. In this period in the United States there were only 860 fewer hospitalizations per 100,000 inhabitants.


* Hospitals on the island do not have enough room to improve employee salaries. The average annual salary for a full-time hospital employee in the U.S. is $84,373 compared to $34,199 in Puerto Rico. In the past nine years in the mainland U.S., the average salary increased by $20,354, and in Puerto Rico, the increase was only $3,111.


“The team that prepared this report points out in its conclusions several recommendations to the Puerto Rico hospital sector: be more efficient in managing its income by seeking to align payment methods with its mix of patients and diagnoses; data analysis that supports them in the generation of business strategies; alliance with employers and other sectors of the economy to respond to the needs of hospital services in their service areas; alliances with primary care physicians, specialists and subspecialists to align mutual interests in effective patient management; alliances with other hospitals and service providers to develop and complement each other, with more opportunities for economic strengthening,” Castillo said.

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