Morgan Stanley: 1 in 10 Hospitals at Risk for Closure

Nearly 10% of hospitals are at risk of closure, according to a new analysis.

Morgan Stanley, an investment bank and financial services company, analyzed data on more than 6,000 hospitals and found that 450, or 8%, are at risk for closure. Plus, an additional 10% are performing weakly, meaning close to 20% of hospitals are not operating in a “healthy” way.

Morgan Stanley attributed those figures to a number of potential risk factors, including:

  • A higher-occupancy facility is located nearby.
  • Low capital expenditures.
  • For-profit status instead of nonprofit status.
  • A lower operating efficiency index, which measures how well a hospital can turn federal reimbursements into profit.

The report also cited new competitors and disruptors—such as retail healthcare—and the rise of high-deductible health plans amid skyrocketing prices as factors impacting hospital profits.

“While potential disruption from the new Amazon venture has been grabbing headlines, we think closures will enter the narrative on hospitals during the next 12 to 18 months,” the group said in the report.

Gurpreet Singh, partner and U.S. health services leader at PwC, told FierceHealthcare that these disruptors are especially a threat to smaller, rural hospitals that can’t adjust as quickly to the changing landscape of the industry.

Regional facilities are often so focused on day-to-day operational concerns that they’re not as agile in planning for new challenges—and often fail to react until it’s too late, Singh said. These facilities, too, often operate in a heavily fee-for-service way, creating additional “inefficiency in the value change.”

This uncertainty makes these smaller hospitals more likely to align with bigger systems, he said. “A standalone entity has difficulty having the right level of scale and the right level of offerings to patients and consumers,” he said.

Morgan Stanley flagged this trend, too, and noted that consolidation in healthcare may have paid off initially for providers but is “not a cure-all” for poor financial performance.

Plus, growing interested in vertical mergers—such as the proposed deal between CVS Health and Aetna—has forced providers to rethink their role in the healthcare system, Singh said. Academic medical centers, for example, can use their research arms for product development and larger health systems are able to offer a health plan on top of their traditional services.

However, the most at-risk hospitals lack the capabilities to try these new approaches, he said.

“If you’re not in the game of creating new growth opportunities, then you’re at risk of being upside down, so to speak, and at risk, obviously, of closure,” Singh said.