Nov. 20 (Bloomberg) -- David Goodrich sat in the emergency room of the 135-year-old Landmark Medical Center in Woonsocket, Rhode Island, his head in his hands, waiting for doctors to treat his octogenarian aunt’s swollen ankles.

“I don’t know what I would do if this place wasn’t around,” said Goodrich, 64, surrounded by peeling gray walls and flyspecked fluorescent lights. He may find out soon.

The 214-bed hospital, the only one serving the city of about 44,000, is under siege. Like hundreds of the country’s 2,744 not- for-profit facilities offering acute care, Landmark is cutting services as tightening credit, lagging government payments and a rise in uninsured patients create record losses.

The hospital, 14 miles (23 kilometers) north of Providence, is operating under a court-appointed supervisor, who’s seeking a buyer to keep the facility open.

“This is, by far, the worst I’ve ever seen in all the years I’ve been in business,” said Ronald Del Mauro, chief executive officer of West Orange, New Jersey-based Saint Barnabas Health Care System, which operates six hospitals and nine nursing homes.

Financial pressure may intensify when President-elect Barack Obama takes office in January during the worst economic slump since the Great Depression. Hospitals will face an “added risk of tougher reimbursement negotiations” with insurers, whose profits may shrink under the Democrat’s plan to overhaul the $2.2 trillion U.S. health-care system, according to a Nov. 6 report by Moody’s Investors Service in New York.

‘Watching Our Cash’

Interest hospitals paid on variable-rate bonds in the third quarter rose 15 percent compared with the same period a year ago, according to a study released yesterday by the American Hospital Association. Uncompensated care in the quarter increased 8 percent.

Hospitals lost $831.5 million on investments in the third quarter compared with an overall gain of $396.1 million in 2007, according to the study, which excluded U.S. government-run facilities.

Saint Barnabas, which last month announced a restructuring plan including up to 200 layoffs and the likely sale of four nursing homes, is among those cutting jobs and postponing expansions as losses mount.

‘Watching Our Cash’

Allina Hospitals & Clinics, the biggest health-care provider in Minneapolis and St. Paul, last month announced plans to eliminate as many as 350 of its 23,000 jobs. Exempla Healthcare, which owns two hospitals in the Denver area and jointly operates a third, delayed completing a new wing for one facility.

“We’re watching our cash position very carefully,” said Exempla CEO Jeff Selberg.

Hawaii Medical Center LLC, with two hospitals on Oahu, filed for Chapter 11 bankruptcy reorganization on Aug. 29, saying Siemens Financial Services Inc., a New York-based unit of Europe’s biggest engineering company, declined to extend a $10.5 million revolving loan. The funds were needed to pay creditors and cover payroll expenses, said Salim Hasham, the health center’s chief implementation officer.

Esra Ozer, senior director of external relations for Siemens, disputed the hospital’s assertion in an e-mailed statement today, saying that Siemens “did not decline to extend the loan” and intends to work with HMC to resolve its problems.

Ten of New Jersey’s 80 hospitals have gone out of business in the last 22 months, said Sean Hopkins, senior vice president of health economics for the New Jersey Hospital Association. Of those still open, he said, “half are in the red. The other half are operating with very, very thin margins.”

Tight Credit

Before credit markets seized up earlier this year, many hospitals took on debt to boost services and purchase equipment, hoping to attract more affluent patients. Now, volatile interest rates are driving up borrowing costs and upending expansion plans.

Alliance Health & Human Services of Newton, Massachusetts, a not-for-profit chain of six facilities, was paying 1.82 percent on Sept. 18 on a $14.6 million variable-rate bond. The rate climbed to 9.8 percent a week later, before falling back to 2.31 percent on Oct. 30.

“It’s certainly anxiety-provoking,” CEO Mary McCarthy said. “It’s causing us all to contemplate scenarios we never expected.”

Hospital debt levels are climbing as the economy worsens, unemployment rises and the ranks of the uninsured swell, said Darren Lehrich, an analyst with Deutsche Bank Securities Inc. in New York.

Reimbursements Fall

“Everybody is going to get their fair share of the uninsured and rising bad debt, especially if non-profits go under,” Lehrich said.

Hospitals are also facing declining government expense reimbursement rates.

Medicare, the federal insurance program covering people 65 years and older, returned about 91 percent of hospitals’ costs in 2007, down eight percentage points since 2000, according to Caroline Steinberg, an American Hospital Association analyst.

Medicaid, a government health plan for the poor, reimbursed hospitals at a level of 86 percent in 2007, a decline of seven percentage points from 2000.

“As many as one-third of all hospitals are struggling to meet capital needs,” said Richard Clarke, CEO of the Healthcare Financial Management Association, a trade group in Westchester, Illinois. Most of those facilities are not-for-profit, he said.

Cash Shortfall

Landmark administrators estimate their hospital lost $6.4 million in the fiscal year that ended Sept. 30, the fourth consecutive annual deficit. The hospital has enough cash to stay open until mid-2009, said Jonathan Savage, the special master working on the facility’s finances.

“Worsening economic conditions are overtaking our ability to make a margin,” said Richard Charest, Landmark’s 56-year-old president.

The proportion of uninsured state residents doubled to 11 percent in the last five years, exacerbating Landmark’s financial woes, while tight credit markets limit the number of potential partners, said Edward Quinlan, 58, president of the Hospital Association of Rhode Island.

“This is not a case of the hospital not being used,” Quinlan said. “This is about the dramatic downturn in markets jeopardizing access to health care. We’re breaking new ground here.”

The hospital spent about $6 million earlier this decade to build a cardiac center with two operating rooms. When maintaining the open-heart surgical unit became too expensive this year, Landmark limited cardiac procedures to angioplasty.

‘Hit Hard’

A Landmark shutdown would force patients to travel to Providence to use Lifespan, the largest not-for-profit medical system in Rhode Island with three hospitals in the state capital.

Lifespan “would treat them regardless of their ability to pay,” said Linda Shelton, a spokeswoman.

Landmark is Woonsocket’s second-largest employer, providing 1,200 jobs. The city, home to drugstore operator CVS Caremark Corp., had an unemployment rate of 10 percent in September, according to the state Department of Labor and Training.

“Every year we’re seeing an increase in the ranks of the uninsured and jobless,” said Charest. “The people who live in this community have been hit hard by the economy and are mostly elderly. They depend on this hospital.”

To contact the reporters on this story: Kelly Riddell in Washington at kriddell1@bloomberg.net; Michael Janofsky in Los Angeles at mjanofsky@bloomberg.net.

Last Updated: November 20, 2008 15:38 EST