New Jersey faces an overabundance of hospital beds and aging health care facilities, according to a report released last week that addresses the fiscal health of hospitals throughout the Garden State.

For more than a year, the Commission on Rationalizing Health Care Resources has been evaluating hospitals to give officials an overall view and to create a method by which officials can determine which hospitals are most essential to a community as well as the financial viability of the state’s health care facilities.

While the report does not suggest which hospitals should be closed, it does give Gov. Jon Corzine and legislators a way to determine whether a facility should receive financial help from the state to keep highly needed facilities up and running, or whether a hospital would better serve a community and the state by closing its doors.

“I think it gives the governor, which was the purpose, some tools to use in working with what is admittedly somewhat of a hospital crisis in New Jersey,” said Mark Hopkins, executive director of the New Jersey Health Care Facilities Financing Authority.

Since 1992, 18 New Jersey hospitals have closed, with five facilities ending operations since the commission began its evaluation and another five institutions declaring bankruptcy, according to the New Jersey Hospital Association, a nonprofit organization that represents 112 hospitals throughout the state.

One recommendation in the report suggests the state form an “early warning system” to identify institutions that are heading into fiscal trouble. HCFFA officials are looking into creating monthly fiscal statements of hospital performance along with the quarterly fiscal reports the authority currently produces to identify potential financial problems sooner.

“There may be something that we can help the [Department of Health] construct that would be short of collecting complete financial statements every quarter, but would have enough key indicators in it that it might speed up our reaction time by a month or two,” said Steve Fillebrown, the HCFFA’s director of research and investor relations.

Yet the NJHA believes that while the commission’s report pulls together important information, the state needs to address how it can financially strengthen New Jersey hospitals, including how the state compensates health care institutions.

“We do not mean to diminish the commission’s work,” Betsy Ryan, the NJHA’s chief operating officer and president elect, said in a press release. “It provides a thoughtful explanation of the factors leading to hospitals’ financial distress, along with some sound recommendations that could help improve our health care system. But despite those efforts, hospitals’ financial worries will persist if the state does not address the critical shortcomings that remain. As long as hospitals are underpaid for each and every Medicaid and charity care patient, they will continue to struggle and close.”

The report designated eight different geographical health care market areas in New Jersey, with each area currently showing a surplus of hospital beds, and the commission anticipates those excess numbers will increase in 2010 and 2015. While the state’s overall occupancy ratio is 72%, which is better than the 2003 national average of 65%, all of the state’s eight market areas carry an occupancy ratio below the “full occupancy” ratio of 80% to 85%, the range that experts use to determine a hospital’s use, according to the report.

“These results suggest that projected demand for inpatient hospital services could be satisfied without at least one of each of these areas’ current hospitals,” according to the report.

Fillebrown said the state will need to decide which hospitals should shut down as opposed to keeping facilities open with fewer beds while maintaining medical assistance within a community.

“I think the idea is that you need to figure out which of those hospitals you can do without and not affect access to care,” he said.

Fillebrown, along with Hopkins, helped work on the report with the commission.

In comparing the fiscal stability of New Jersey hospitals to health care facilities in Connecticut, Maryland, New York, and Pennsylvania, the Garden State has the second highest long-term debt to capitalization ratio, 52.5%. That ratio shows the degree to which a hospital is leveraged as it factors the amount of the institution’s assets that have been financed with debt as compared to endowment, fund-raising, or general revenue funds. New York tops the list with a 61.1% ratio, followed by Maryland with 49.8%. The national average ratio is 38.6%.

In addition, New Jersey has the lowest debt coverage ratio, 2.43 times, among the five states, with New York at 2.52 times and Pennsylvania at 3.23 times. Connecticut hospitals have the highest coverage of 3.78 times, yet that figure is below the national average of 3.98 times.

In looking at the age of health care buildings, New Jersey has, on average, older hospital facilities than the other five states. New Jersey hospitals have an average age of 13.4 years, followed by Pennsylvania with 12.2 years, and Connecticut with 10.8 years. The average national age is 10.2 years, according to the report.

Yet a number of health care providers throughout the Garden State are planning renovations, expansions, and new facilities through the NJHCFFA, which currently has $2.2 billion of bond deals in its pipeline for 2008 compared with $877 million of debt the authority sold on behalf of New Jersey hospitals in 2007.

The larger upcoming deals within the authority’s portfolio include a $600 million new money transaction for Virtua Health with UBS Securities LLC and Wachovia Bank NA as co-senior managers. Virtua plans to build a replacement facility with the bond proceeds. Also in the pipeline is a $500 million new money sale for Capital Health System, which plans to move Mercer Hospital from Princeton to Hopewell. Wachovia and UBS will also serve as co-senior managers on that deal as well.


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