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Report: Puerto Rico’s hospital industry faces consolidation amid financial stress

Amid a challenging scenario of a contraction of its services with 80,000 fewer patients in the past six years, bankruptcies, reduction of employees and beds, the hospital industry in Puerto Rico faces enormous challenges, according to an analysis by firm Estudios Técnicos Inc. in collaboration with CPA firm Galíndez LLC. 

A process of further consolidation of hospitals, protection and restructuring under bankruptcy court procedures, and alliances with other health industry sectors is anticipated to strengthen their financial and operational stability.

The analysis is part of the report “Hospital Industry: Its Market and Financial Situation.” 

To compile the report, Estudios Técnicos developed a big data tool to process and transform financial data from the financial statements in Puerto Rico and the mainland U.S. over the past 12 years. The statements are submitted to the Centers for Medicare and Medicaid Services. Galíndez validated the report.

“One of the main factors affecting the financial health of hospitals is the reduction and aging of the population in Puerto Rico,” said Graham Castillo, president of Estudios Técnicos. “The change in the island’s demographic structure has two important impacts: first, it reduces the number of patients; and second, it reduces the hospital’s profitability because it is more expensive to meet the health care needs of the elderly, the fastest-growing population group in Puerto Rico.”

Julio Galíndez, consulting partner at Galíndez, added: “Recent events where hospitals have had to resort to financial protection under bankruptcy court lead us to conclude that they are not isolated events. We understand that a consolidation process will soon take place when established hospital systems acquire or merge with other hospitals into their systems. 

“In the recent case of the HIMA-San Pablo Group, we see how the Metro Pavía Group acquired the HIMA hospital in Caguas, how Auxilio Mutuo acquired the HIMA hospital in Bayamón, and how Caribbean Medical acquired the HIMA hospital in Fajardo. We do not rule out in the short- or medium-term future that other hospital entities seek the protection provided by bankruptcy court and end up becoming part of a health care system or end up with a new ownership structure as was the case with Hospital HIMA Humacao and recently Hospital San Jorge.”

“The hospital sector faces uncontrollable external factors that will define its future role in providing essential health care services. Other external factors presenting challenges to the hospital sector include: clinical service delivery models that emphasize outpatient treatment; the evolution of pharmacological technology towards medications replacing hospital-level health care services; an economic compensation structure at the primary care level that incentivizes not referring patients to hospital care; and a tariff system in which the hospital does not participate in setting payment rates,” he explained.

Among the data on the hospital industry in Puerto Rico collected by Estudios Técnicos’ new tool, Castillo mentioned the following:

  • The bed occupancy rate in Puerto Rico decreased by more than 12 percentage points from 74.1% in 2013 to 62.26% in 2022, while stateside, the rate increased from 49.1% to 53.2%.
  • In 2021, Puerto Rico saw 80,000 fewer patients than in 2016, with the number of patients treated falling from 336,929 to 257,528.
  • Puerto Rican hospitals also experienced a higher economic loss in patient services income, averaging a 5.6% loss over six years, compared to a 1% loss in the entire U.S.
  • The workforce in Puerto Rico’s hospitals shrank by nearly 6,000 from 2016 to 2021, going from 31,263 to 25,416 employees.
  • Hospitalizations decreased more significantly in Puerto Rico than in the states, with a drop of 1,744 hospitalizations per 100,000 inhabitants compared to a drop of 860 stateside.
  • Salary constraints are also evident, with the average annual salary of a full-time hospital employee in Puerto Rico at $34,199, substantially less than the U.S. average of $84,373. Over nine years, the average salary in Puerto Rico increased by only $3,111, compared to $20,354 in the U.S

“The team that prepared this report points out several recommendations to the hospital sector in Puerto Rico in their conclusions: To be more efficient in managing their revenues by aligning payment methods with their mix of patients and diagnoses; data analysis to support them in generating business strategies; alliances with employers and other sectors of the economy to meet hospital services needs in their service areas; alliances with primary care physicians, specialists and subspecialists to align mutual interests in effective patient management; alliances with other hospitals and service providers to develop and complement each other, with more opportunities for economic strengthening,” Castillo concluded.

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