Hospitals and Bankruptcy

How does a hospital go bankrupt?

When I was interviewing for jobs, I actually visited a hospital that was in dire financial straits. The hospital and staff were great, but I kept wondering, what happens if it is financially insolvent? How do we spend such tremendous sums of money on healthcare in this country, yet have hospitals shutting down or scrambling for buyers because they can't make ends meet? How can we have such drastic disparities even within the Bay Area?

I don't know much about hospital administration, finances, or organization but I imagine a lot of different factors are at play. This hospital cared for many who were uninsured, provided a lot of charity care, yet it was not a county hospital so it didn't get buoyed by public funds. Perhaps hospital management needed to focus more on optimizing efficiency, attracting and retaining high quality practitioners, and developing a strong reputation. We vilify hospitals for trying to extract as much money as they can from insurers or patients, but a hospital that doesn't focus on finances cannot keep operating. Even nonprofits need to meet the bottom line.

Eventually, hospitals may need to find other parties to buy them out, or they risk closing down. Such turmoil has lasting effects on the community. There are few alternatives to these "safety net" hospitals, which care for the poor. If the hospital changes management, it may be uncertain whether that mission will remain; if the hospital closes, nearby facilities will have to step up. Physicians worry that they need to move their practices elsewhere, and when they start moving their business, the hospital starts losing more money, creating a vicious cycle. Doctors may not want to work with the new management buying the hospital. Prospective physicians like me won't take the job simply because of its uncertainty, even if we otherwise like the underserved populations, the dedicated colleagues. Labor unions at the hospital scramble and protest. The volatility can have so many downstream effects.

Ultimately, it seems drastic to shut down a hospital, and we almost think that it would never happen, as if hospitals were "too big to fail." Unfortunately, unlike Wall Street, there aren't a lot of ways to bail a hospital out of this situation.