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Community Hospitals at the Losing End of the New Tax Reform

When the news of the proposed tax bill first emerged last year, the stated mentality was that be the end of the bill passing, there would be a benefiting end and a losing end.

Once the main points of the bill were made public, it was clear that in personal and professional finances alike, everyone in the United States would be (and now will be) affected by this.

Ron Rittenmeyer, Executive Chairman and CEO of Tenet Health, expects this tax reform to have a positive effect on Tenet from an economic perspective. Tenet Health, with a reported $19.26B revenue for the 2016 fiscal year is one of the larger corporations that expects a 5.3% growth in the upcoming year and will definitely benefit from the tax reform.

Other big name health systems such as the Mayo Clinic and the Cleveland Clinic are expected to greatly benefit as well.

But as the title of this post mentions, what does that mean for the little guy? The community hospitals that service the rural areas and less financially stable?

It is reported that community hospitals rushed to have bonds issued before the reform takes effect. A sad reality to community hospitals is that bonds have been their main funding source as they are non-profit. In the first two weeks of December of 2017, the municipal bond saw a $13B increase per week in bonds issued.

The California Hospital Association has stated that the reform will be costly to community hospitals in their state – with an estimated $120M increase in costs annually. Wisconsin states a similar case, albeit at a smaller scale at $79M annually.

These costs are expected to trickle down to patients with heightened costs for services just to keep their operation running. Disregarding upgrades to their sites, it is also feared that the increase in costs will not be covered by Medicare and Medicaid.

Looking at the entire scenario with uncertainty and fear, many CEO’s of rural and community hospitals believe that their future holds servicing areas with run-down and outdated facilities and ultimately, not being able to service certain regions at all due to closures.

Because these facilities do not have the name recognition of larger health systems and hospitals, investors will not show interest in them.

Perhaps this is an opportunity for larger hospitals and health systems to step up and reform themselves to give back to the communities they surround. An article written by Haider Warraich in late 2017 gave a picture of what the rich versus poor scenario looks like in plain sight when he described the beautiful Cleveland Clinic interior and the immediate difference of the abandoned neighborhoods in the surrounding area once one exits Cleveland Clinic’s premises.


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