Plummeting profits trigger wave of hospital closures in Southland.

Thirty-three hospitals have closed in Los Angeles County since 1983, and a wave of hospital closures is looming, according to health experts.

Reacting to the dire report released Aug. 25 by the Hospital Council of Southern California, which showed that profits and occupancy rates at Southland hospitals are at an all-time low, health experts said they are surprised more local hospitals have not closed.

Robert Boullon, president of the 1,200-member Health Care Financial Management Association of Southern California and director of finance at St. Mary Medical Center in Long Beach, compared the predicament facing the hospital industry to the dilemma facing the domestic auto industry a few years back.

He said many hospitals have been losing money or just breaking even for years. But they have managed to maintain a positive cash flow because a large portion of their expenses is depreciation, a non-cash expense.

"What's happening, though, is that the hospitals are not adequately investing in capital and equipment for the future," Boullon said.

He said hospitals' chances of surviving with low occupancy rates vary, depending primarily on their patients' insurance situation.

Inner-city hospitals, for instance, may have high occupancy rates, but most of their patients are poor, with either no insurance or only Medi-Cal, the government-funded insurance for the poor.

The hospitals most at risk are independent community hospitals because they don't have a chain to subsidize their losses, they can't obtain the high-volume purchasing discounts available to larger hospitals, and they are not part of an integrated health care system, said health care experts.

To survive, hospitals will need to either merge, join a national chain or contract with physician groups that purchase services from hospitals, said industry sources.

Boullon predicted that the next couple years will be a "period of unprecedented mergers and consolidations."

The report, based on financial data California hospitals are required to file with the Office of Statewide Health Planning and Development, contained the following dire statistics:

* Occupancy rates at private acute-care hospitals in Los Angeles County plummeted to a record low of 42 percent in 1992, down from 50 percent in 1989.

For hospitals to break even, they typically need to have an occupancy rate of between 50 and 60 percent, said David Langness, a spokesman for the hospital council.

* Even more telling, 51 percent of the 169 private acute-care hospitals in Southern California lost money in 1992.

* Total combined operating profits for Southern California private acute-care hospitals plunged from $70 million in 1989 to a combined operating loss of $70 million in 1992.

At this rate, "hospitals will become capital intensive dinosaurs," commented Peter Ripper, president of PARA, a health care consulting firm in Pasadena.

Ever-shorter hospital stays and declining admissions are the root causes of the hospitals' woes, he said.

The amount of money hospitals take in corresponds directly to the number of patients being admitted and the lengths of their stays.

One health care expert, who asked not to be named, said he was at a health care conference recently and heard one of the speakers tell the group that "an inpatient (admission) is failure of the outpatient system." And that emphasis on outpatient care is contributing to hospitals' bottom-line problems.

Also contributing to the decline in hospitals' profits are advances in technology that have reduced the frequency and length of hospital stays, the boom in managed-care companies that negotiate contracts close to the margin, and the growing number of uninsured patients, sources said.

"You would think, because the population is increasing, that hospitals would be doing better. But it's just the opposite," said Langness of the hospital council.

Even L.A.'s flagship hospitals -- Cedars-Sinai Medical Center and UCLA Medical Center - are operating considerably below their traditional patient loads.

Cedars-Sinai, which had an average occupancy rate of about 72 percent a year ago, now has an average occupancy rate in the low 60s, said Tom Priselac, executive vice president and chief operating officer for the hospital. He said, while patient admissions have only fallen 4 percent from a year ago, the patients' average length of stay has dropped dramatically.