Hospital Bankruptcies: Why Are They on the Rise and What Happens to Patient Records?


February 13th, 2020

Hospital bankruptcies are trending up. Find out the drivers of this trend and the complexities around the retainment and accessibility of patient records.

hospital bankruptcies

Hospital bankruptcies are becoming more modern, even in a world where there are more patients, more treatments, and more medications. According to Bloomberg, 30 hospitals entered bankruptcy in 2019. But why is this becoming an epidemic, and what happens to patient data once facilities shutter?

Deciphering the Rise in Hospital Bankruptcies

bankrupt hospital

There are multiple causes for the collapse of hospitals; like anything in healthcare, it’s complicated. Overall, many hospitals are thriving and profitable, but it’s not across the board. So, what’s driving the trend?

Shift to Value-Based Care and Meeting Federal Mandates

CMS initiated this transformation from fee-for-service to value-based care in 2015. In the past, providers were paid for the amount of services performed. This model incentivized providers to order more tests and procedures. Spending was up yet had no real positive impact on patient outcomes.

To course correct, the federal government developed value-based care structures, which, in theory, focused on improving the quality of care and accounting for the price at the point of care. In this model, physicians are encouraged to use evidence-based medicine, engage their patients, invest in health IT, and leverage data analytics to get paid for services.

This shift sounds like a winning proposition for all, but it put enormous stress on the industry, leading to less revenue and more spending. The American Hospital Association (AHA) found that community hospitals spend an average of $7.6 million each year on administrative costs to meet federal regulations related to quality reporting, record-keeping, and meaningful use compliance. This increase in spending doesn’t exactly correlate to reducing costs or improving care, making many hospitals vulnerable to collapsing.

Americans Are Leaving Rural American in Droves

According to the U.S. Census Bureau, approximately 80% of U.S. citizens live in urban areas. That number has continued to rise because urban areas offer jobs, amenities, and better schools. Employment opportunities in small-town America are drying up, with the local county hospital often being the biggest employer. With fewer people and businesses in rural areas, community hospitals are struggling to stay afloat.

Medicare and Medicaid Reimbursement Rarely Covers the Cost of Treating the Patient

The AHA found that CMS paid 90 cents for every dollar a hospital spent on Medicaid beneficiaries, while it was only 88 cents for Medicare patients. This inequity leads to a shortage of $41.6 billion for Medicare providers and $16.3 billion for Medicaid providers. Eventually, these shortfalls catch up to hospitals and leave them drowning in debt.

Complicating the matter is that the Affordable Care Act (ACA) cut disproportionate-share hospitals (DSH) payments. The assumption was that under the ACA, hospitals would no longer need DSH payments. The problem is that some states did not choose to expand Medicaid under the ACA, leaving them financially vulnerable.

Urgent Care Facilities Taking a Cut from Hospitals

Years ago, if you need immediate care, the only option was the ER. The ER was once filled with patients with “minor” injuries like a slashed finger or a broken arm. Now, patients have more options that are less expensive and quicker. Urgent care facilities have expanded considerably, often staying open late and offering services on the weekend.

While this new type of care does reduce some of the costs across the entire healthcare ecosystem, it means hospitals lose patients. Most hospitals only considered competition to be the other healthcare system; now, the competition is much closer and offers more convenience to the average consumer.

Hospital Closures: What Happens to Patient Data?

patient records after bankruptcy

Not all hospitals that file bankruptcy disappear. Many are sold to larger health systems that consolidate and initiate strategies to go lean like laying off workers. However, some completely liquidate. The question is, what happens to patient records?

Federal and state laws impose mandatory medical record retention requirements on hospitals and physician practices. The Medicare Conditions of Participation, for example, require hospitals to retain records for five years (six years for critical access hospitals). HIPAA and HITECH have included new requirements on top of this, while states also have their own requirements.

Thus, whether that hospital is sold or closed forever, those records have to be kept and be accessible to patients. In many cases, if a healthcare system takes over a hospital, they may choose to add the data to their EHR system, which would require a data conversion.

However, since the buyer doesn’t have insights into the quality or relevancy of the data, they may choose to keep it separate, opting for a data archiving solution. Archiving can be a low-cost, compliant way to retain access to the data.

Who Becomes the Holder of Records with Closures?

If a hospital closes, records management planning must take place, and typically the organization is still held liable for keeping PHI safe and secure. A closed hospital can transfer its patient records to another entity, which then agrees to accept responsibility. Like in the scenario of a hospital being sold, the new holder of the data could choose to convert them to their system or archive them.

Should there be no healthcare organization that wants to take ownership, a reputable commercial storage firm can then hold those records. It’s also critical that any impacted patients be formally notified of the closure and how they can access their records. Bankruptcy doesn’t protect these entities from doing their due diligence when it comes to maintaining and providing access to the data.

Hospital Bankruptcies Have Significant Impacts

Unfortunately, the trend of hospital bankruptcies isn’t projected to decline. The lasting effects of these bankruptcies is felt by the community, patients, and medical professionals. As the ecosystem of healthcare continues to evolve in this country, having access to care and medical records will continue to be a concern and challenge.

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