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Biosecurity BriefingGAO Report Examines Financial Status and Viability of 5 New Orleans Hospitals By Crystal Franco, July 28, 2008 On July 17, 2007, the U.S. Government Accountability Office (GAO) released a report to the U.S. House of Representatives Committee on Energy and Commerce entitled Hurricane Katrina: Trends in the Operating Results of Five Hospitals in New Orleans before and after Hurricane Katrina. The report focuses on the status and financial viability of the New Orleans healthcare system, and focuses specifically on a few hospitals which have been the main providers of healthcare for the region since Katrina hit in 2005.1 The purpose of this report is to review the operating results of five New Orleans hospitals before and after Hurricane Katrina, and examine the factors contributing to changes in hospital financial standings and determine whether those factors will have an impact on the viability of hospitals in the future. The report finds that 3 years after Hurricane Katrina there are 5 hospitals that together, provide a bulk of the healthcare in New Orleans: West Jefferson Medical Center, East Jefferson General Hospital, Ochsner Health System, Touro Infirmary, and Tulane University Hospital and Clinic. All of these healthcare institutions sustained structural damage in Katrina, but either remained open during and in the aftermath of the storm, or were able to reopen their facilities after damages were repaired. Other hospitals in the area, such as Charity Hospital and University Hospital, have either been unable to reopen or are providing care at a greatly reduced capacity. The report uses three measures of profitability to review the operating results of the five hospitals both pre and post-Katrina: 1) operating income or loss; 2) net income or loss; and 3) hospital earnings before interest, depreciation, and amortization (EBIDA). Based on these three measures, hospitals have shown financial improvement in some areas since 2005. However, “four of the five hospitals have weakened financial positions,” as demonstrated by declines in their net assets. These declines indicate that hospitals have been “using their assets, taking on additional debt, or both” to offset increases in operating costs.1 As shown in the table below, the total operating loss for the 5 hospitals in 2007 was $145.6 million, with Tulane University Hospital and Clinic suffering a greater loss in 2007 than in 2005 (the year when Hurricane Katrina struck). This table was reproduced from the GAO report:
Hospital officials and credit analysts have attributed hospital operating losses mainly to an increase in costs for utilities and labor. A large proportion of the healthcare workforce, which left the area due to the hurricane, never returned. Hiring is difficult because healthcare staff is highly skilled and hard to replace; also, retention is low. Given these factors, healthcare worker salaries have risen, contributing to increased operating costs. Hospital officials have also indicated that, in addition to increases in labor costs, insufficient reimbursement from Medicare, private insurance, and other government payers, as well as an increase in the proportion of care provided to uninsured patients, have negatively affected hospital financial positions. While the healthcare workforce may not have returned to full strength since Katrina, patient numbers have certainly rebounded. The report indicates that for the 5 hospitals examined here, patient volumes have returned to near pre-Katrina levels. Louisiana state health officials are currently working on plans which will help shape the future structure of healthcare in New Orleans. However, the future is still uncertain, and the report concludes with the observation that continued financial losses for these hospitals may “impair [their] ability…to remain viable entities that can provide health care to the residents of New Orleans.”1 References
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