When we first heard that Mercy
had decided to close this hospital permanently, the community was in
a state of shock. Anger. Disappointment. We thought it would always be here. When bad things happen in our
lives we like to blame people. And there was a
lot of finger pointing. In rural towns across the U.S. hospitals are in crisis. Since 2010, 121 rural
hospitals have closed. And the National Rural Health Association
says more than one-third of all rural hospitals in the U.S. are at serious risk
of shutting down. And it's not just rural hospitals
that are going out of business. Several hospitals in urban areas
including Phoenix and Chicago have shut down. One recent high profile
closure was in the heart of Philadelphia. Hahnemann Hospital was a
496-bed hospital considered by many to be a lifeline
for the city's neediest. But in September 2019 it shut its
doors as it struggled with monthly losses of $3 to $5
million, according to news reports. The closure of the hospital
was pretty upsetting, was pretty heartbreaking for I think
everybody who worked there. But not all U.S.
hospitals are suffering. Since the 1990's, a series of
mergers and acquisitions have created mammoth hospital groups. Many of these hospital consortiums
are turning huge profits every year by offering high priced
services like cardiac and orthopedic care to well insured patients. So why is it that some U.S. hospitals are making billions while hundreds
of others are going out of business? Hospitals in the U.S. got their start in
the mid-18th century. Before, if a person got sick, a
doctor would come to your home and treat your illness - for a fee. Poor sick people often
found shelter in almshouses. Charitable organizations that
housed the destitute. But things changed in 1736 when
two the oldest hospitals in North America opened. The charity hospital opened its doors in
the colony of New Orleans - the same year New York's
Bellevue Hospital began operations. Early h ospitals were really
welfare institutions, not particularly clean places. Infection was rampant and they were
really the houses of the last resort. But it wasn't until after
the Civil War that hospitals really took off in the U.S. With advances in medicine and
more people moving into cities, churches as well as local
governments started to build hospitals across the country. In 1873, there
were 178 hospitals in the U.S. By 1909, there were
more than 4,000. By the 1920s and 30s, hospitals
are pretty much having to start charging patients. Most of these systems were in
place that formed the modern hospital. We had laboratories, machines that
could do blood work. Hospital construction picked up after
the Hill-Burton Act passed in 1946. The federal law gave out $3.7 billion over the span of 30
years for hospital expansion across the U.S. The passage of government
funded medical insurance program Medicare in 1965 injected even more
cash to build more hospitals. By 1975, there were about
6,000 hospitals in the U.S. But in the mid-1970s
hospitals started to close. Analysts say, that had a lot
to do with advancements in technology procedures that previously required
hospitalization didn't anymore. Mergers were another factor for driving
down the total number of hospitals in the U.S. Rising health care costs starting in
the 80s pressed hospitals to team up to survive. The first wave actually started
in the mid 1990's. Then it took a pause and then
we saw mergers and acquisitions come back with great velocity in the mid 2000s. Between 2008 and 2014, there were
more than 750 hospital acquisitions and mergers in the U.S. And that trend has
continued to today. By 2018, the most recent year
this data was available, there were over 5,000 hospitals in the U.S. an 11 percent drop from 1975. There are thousands of hospitals, big
and small, but about 5,000 are considered acute care hospitals where you
go for short term care and urgent medical treatment. For the purpose of this video we're
just going to focus on this type of hospital. Every hospital has its own
model for how it brings in cash. Revenue is also dependent on
a whole lot of factors, including the type of insurance a patient
has and the medical and surgical services offered by the hospital. Hospitals can also make money
from graduate medical training subsidized by Medicare, investments on
endowments and money from donors. But generally speaking, the bulk
sum of hospital income comes from commercial payers like private
health insurance and government payers like Medicare, which is typically
for people aged 65 and older and Medicaid, which is for
people with a low income. Hospitals prefer patients with private
health insurance because that insurance pays the best. Medicaid pays the least. Here's how it works in practice. The Mayo Clinic is a non-profit
academic health care system with hospitals in Minnesota, Arizona,
Florida, Iowa and Wisconsin. The Mayo Clinic had
revenue of $12.6 billion in 2013. Almost 85 percent of that money
came from medical service revenue, which includes all the cash a
hospital gets for patient treatment. Four percent came from grants and
contracts, three percent came from investment returns and the remainder from
a mix of other smaller sources. Let's take a closer look at
some of these sources of income. Medical service revenue at the
Mayo Clinic was $10.6 billion dollars in 2018. Fifty nine percent of that cash
came from contracted health insurance plans, 24 percent came from
Medicare, 14 percent came from non-contracted health insurance plans and
self-pay and three percent came from Medicaid. According to analysts,
a hospitals location is a big indicator of the type of
insurance a patient will have. People living in wealthy areas tend
to have private health insurance. By and large, one of the greatest
predictors of how much money a hospital makes is how wealthy the
community is in which they are located. Hospitals in wealthy communities often
raise a lot of money in philanthropy and have
well insured patients. Hospitals that are predominantly taking
care of government insured patients or poor patients
tend to struggle. For some hospitals the self-pay category
is a real game changer for profits. In 2018, the
Mayo Clinic treated 1.3 million people from 138 countries. A large internationally known clinic like
the Mayo Clinic is still going to depend on payer mix but
they're also going to try to attract a lot of international patients, many of
whom, if they can travel to the United States, they probably have a
lot of money to burn on their health care. Medical and surgical specialties
can also really boost a hospital's bottom line. One well-known way in which hospitals can
generate a lot of money is to either pivot to or grow
high-ticket services like spine surgery, cancer care, cardiac surgery. That's a major source of income for
a lot of hospitals, not just the high-end hospitals a lot of community
hospitals have got in on the act. But perhaps the most effective
way hospitals can drum up more cash - raising prices. Analysts say, that's one of the
reasons driving all mergers and consolidation across U.S. hospitals. As hospitals grow by
acquiring other hospitals and jacking up prices, they get more
leverage in negotiating insurance contracts so they can command higher prices. The bigger you are, the more power
you have in the business world. Hospitals have begun acquiring
others, developing regional systems. We're seeing city after city consolidate
into a few major systems. Massachusetts General, a nonprofit
affiliated with Harvard Medical School, is a member
of Partners HealthCare. A health system that is made up
of about 15 hospitals and medical centers. Analysts say that Partners
HealthCare's high prices are a result of the medical
groups market dominance. A Massachusetts state agency report
in February 2016 claimed Partners Health Care was the only health care
system in the state where all of its hospitals had higher prices
than the state median. In 2018, Partners had
operating revenue of $13.3 billion. That same year New
York and Presbyterian Hospital's operating revenue was $8.4 billion. Partners HealthCare, which includes
the Massachusetts General Hospital and the Brigham and
Women's Hospital, has massive market domination in the Boston region. It's probably one of the reasons
why they also have extremely high prices for patients
and insurance companies. CNBC reached out to Partners HealthCare,
but they did not provide a comment for this story. After 20 or 30 years of consolidation,
we've ended up at a point where broadly 20 percent of hospitals in
the US are in what is essentially monopoly markets. But while some hospitals are seeing
big revenue gains, many rural facilities across the U.S. are facing a grim future. According to the National Rural
Health Association, almost 700 rural hospitals are in danger
of shutting down. Just take Mercy Hospital Fort Scott,
a nonprofit 46-bed facility in southeast Kansas. After 130 years, the hospital didn't
have enough money to keep going. For the community the
news was crushing. When we got the announcement that
the hospital was closing, myself and my wife, we were devastated. We're like, okay, well, that's
the worst thing we've heard. The community took it hard as well. The CEO would get death threats
even though it wasn't her fault. The grounds of the abandoned hospital are
now home to a small clinic and emergency department. For over a century, Mercy Hospital
Fort Scott served not only the town, a rural community, of farming,
ranching and light industry, but the surrounding Bourbon County
area as well. Bourbon County has a
population of about 15,000. About 10 percent of people in
the county lack health insurance and one in four children
lives in poverty. In its heyday, the hospital
was probably the community's biggest employer. They had five
or six hundred employees. We did a lot of surgeries. We attracted people from 50, 60,
70, 80, 100 miles away. A smaller number of reimbursements starting
in 2013 from private and government insurance programs meant less
money was coming in. And like a lot of struggling
hospitals, the patients coming to Mercy Hospital, Fort Scott had
little or no insurance. The clinic part was doing OK. But when you're losing 90 percent or
almost all of your money because you're not keeping the beds full. That's a real problem and
it's a very expensive problem. Dr. G ugnani started working at Mercy
in 2004 and now works in the clinic run by the Community
Health Center of Southeast Kansas. I'll see anywhere between 25 to 30 people
a day and it can vary from just simple cough and cold to
they got diagnosed with cancer they want to make sure that
their meds are right. I had to go to the ER the
other day. What were you allergic to? What did you get into?
I have no idea. My arms are red and
broke out in hives and my face was swelled up. Say ah . Your throat looks pretty good. You know,
the bad part is I don't know what caused it. According to Dr. G ugnani, some
elderly patients have left Fort Scott to be closer to other
hospitals, including roughly 80 oncology patients who had to
find care elsewhere. Probably as recently as five years ago
t here were maybe as many as 200 babies born here a year. Now those babies are
being born elsewhere. But if it's not a hospital, what
you rural towns like Fort Scott need? This hospital was built
to last 100 years. It's 20 years old now. We certainly didn't need all
the beds that we had. Honestly, I think you
still need hospitals. You may not need a 40-bed hospital, but
I do think you need a smaller version of that. For decades, Hahnemann University Hospital in
Philadelphia was a lifeline for the city's poor. Being a large safety net hospital
next to a poor inner city neighborhood meant it cared for
patients regardless of their ability to pay. But with financial problems
that started in the 1990's the hospital had been in
failing health for years. In 2018, the money losing facility
was bought by American Academic Health System, a for-profit company
led by Joel Freedman, an investment banker from California. Less than two years after the
purchase, with reported losses of more than $3 million a month American
academic health system closed the hospital. When I heard Honeyman was
closing, I didn't believe it. I think most people in the hospital
were probably in some sort of denial. It was extremely abrupt. Almost overnight, residents were left
without a nearby facility, without a nearby emergency room. Twenty seven hundred employees
lost their jobs. And Hahnemann was not alone. Since 1977, Philadelphia has seen
nearly 20 hospitals close. Many located near
low income neighborhoods. In 2016, the city's poverty rate
was more than 25 percent, with nearly 200,000 people living in deep
poverty, according to a study by The Pew Charitable Trusts. Like a lot of hospitals, Hahnemann's payor
mix was one of its biggest problems. We have a lot of
patients of low socioeconomic class that don't have the means to get
private insurance and will rely on government funded insurance. Many other patients are uninsured. The patients who live near
Hahnemann do have other options. The real issue is the emergencies. Where do you go in
the middle of the night? But what outraged many
in the community? The owners place the land beneath
the hospital in a separate company that was not included
in the bankruptcy filing. Everyone from nurses unions to
city officials began speculating that Hahnemann's owners may not have intended
to save the hospital, but instead planned to sell the
land to property developers. The hospital's location near City
Hall makes the land extremely valuable for condominiums or
a high end hotel. There were a lot of suspicions
that the interest in the purchase wasn't to serve the community. It was more to close the hospital. Develop the land from there. The land itself is probably worth
around $50 million dollars, but its prime building territory. Others fear that if the plan succeeds,
it could be a blueprint for private equity firms to buy and
close other hospitals across the U.S. This is a model that we've seen
in the retail sector where the big legacy department stores can
no longer operate. The stores go bankrupt and close
and the real estate becomes tremendously valuable for
commercial development. CNBC reached out to American Academic
Health System, but they did not provide a comment for this story. With some rural and community
hospitals on the decline. Where do hospitals go from here? What should we expect
from our local hospital? Should we have a local hospital? I think 50 or 60 years
ago, every hospital did everything for everyone. I think ultimately that's just
not what the future looks like. According to analysts, the health
care of tomorrow could be a move away from hospitals as new
technologies drive the shift to outpatient care. Since 2009, there has been a
drop in hospital admissions, according to the American
Hospital Association. Ten years ago, a knee surgery would
have meant spending more than a week in hospital. Today, it's possible
to go home the same day. Hospitals have increasingly been seeking
the better paying patients. They want people who can
pay on their own. They want people who have good
insurance coverage and they want people who are going to
be treated for profitable conditions. The future looks like a smaller
number of bigger hospitals scattered across the country that are
providing very, very high intensity specialized care. That could mean for rural communities
and people living in lower income areas. Hospitals will be
more difficult to reach and potentially more expensive
to access. Having one less level, one trauma center
in the city is not a good thing. Having less maternity wards
is not a good thing. I think what we forget is the
public good health care provides and we keep thinking of it
as this business.
