Difficult times for the hospital sector in Puerto Rico

June 25, 2019

Hospitals play a key role in the provision of health services to Puerto Rico citizens. In recent years they have been operating in a complicated environment where several industry trends have been hurting their profitability. That situation has only been aggravated by Hurricane María. Consolidation, both across the hospital sector but also vertically along the health system may help turn these trends around.

This article is the first of a series of Insights where we evaluate the hospital sector of Puerto Rico, looking at its recent trends and providing our perspective looking forward. Let’ start with the size of the hospital sector. There are 61 community hospitals1 in Puerto Rico with a total of approximately 9,350 inpatient beds with presence in 24 of the 78 Municipalities (see Figure 1, double click to zoom in and browse the map to see hospital names and number of beds by hospital)2. The MetroPavía system is the largest hospital group with 11 hospitals across Puerto Rico and 15% of all inpatient beds in the Island, followed by HIMA with 5 hospitals and 13% of inpatient beds (mainly in the Metro and East regions) and the Doctors group with 4 hospitals and 7% of inpatient beds.

The hospital sector in Puerto Rico has experienced a deterioration in terms of profitability driven, in part, by the impact of Hurricane María but, also, by industry dynamics that are putting pressure on their margins. As can be observed in Figure 2, the number of hospitals with a negative income margin increased from 15 to 25 in the past five years, representing almost 44% of all the community hospitals in 2017-18. This compares unfavorably against the hospital sector in the US where the proportion of negative income hospitals averaged 23.5% during the 2010-16 period (22.6% in 2015 and 26.4% in 2016).

One of the forces driving the lower profitability is the effort made by Medicare, Medicaid and the health insurers to reduce hospitals costs. In part, this is done by working with doctors and hospitals to reduce the number of patients that are hospitalized and the average length of stay in hospital inpatient beds, obviously ensuring that patients can be safely treated outside hospitals. This has long been the trend in the United States where the percentage of inpatient vs outpatient revenue decreased from 70% in 1995 to 63% in 2005 and 52% in 2016 (see Figure 3). As can be observed in Figure 4, the Puerto Rico hospital sector has also experienced this trend in recent years (from 68% in 2014 to 64% in 2018) but the proportion of inpatient revenue is still significantly above US levels. The higher inpatient revenue levels in Puerto Rico compared to the United States indicates that there is room for further reduction in terms of patient hospitalization and average length of stay in hospitals. We should expect further margin pressure for hospitals from the inpatient revenue side.

There seems to be an excess of hospital beds in Puerto Rico which is also impacting hospital financials. Puerto Rico ranks number 18 in terms of number of beds per 1,000 persons when we compare against States in the US (see Figure 5). The 2.89 number of beds per 1,000 persons is high, particularly when we consider that the Island is quite dense in terms of population compared to most States. In other words, there is not a need to subsidize hospitals in remote areas with low population density as in States like, for example, Nebraska or Montana. In fact, highly dense States like New Jersey, Rhode Island or Massachusetts show significantly lower ratios than Puerto Rico (2.33, 2.12 and 2.30, respectively).

If we draw a straight line from the center of each of the 901 Puerto Rico sub-counties (“barrios”) to the nearest community hospital, we will only find 19 sub-counties with a straight-line distance larger than 20km. One of these sub-counties is Isla de Mona and another 7 sub-counties are located in Vieques where the only community hospital closed after María and has not reopened since. For the other 11 sub-counties, the straight-line distance to the nearest hospital ranges between 20 and 22.5 kms and they are located in Santa Isabel (Jauca 1), Orocovis (Damián Abajo, Cacaos, Collores, Damián Arriba and Pellejas), Quebradillas (Guajataca, Terranova, San Antonio and Quebradillas Pueblo) and San Sebastián (Guajataca).

The large number of hospital beds is also confirmed by the fact that bed utilization is, in general, low in Puerto Rico. A total of 25 community hospitals in Puerto Rico have a utilization rate below 60%. As can be observed in Figure 6, most of the hospitals with low utilization rate also charge less per inpatient discharge. There seems to be a large variability in terms of the amount charged by hospitals across Puerto Rico. This variability is not only driven by the mix of service types provided by hospitals (e.g. cardiovascular surgeries are more expensive than orthopedic surgeries) but also by a large variability in operating costs across hospitals.

But what are the implications of the deterioration of hospitals profitability and the drivers behind it? First of all, there seems to be room for consolidation to leverage hospital synergies, particularly for hospitals located in the same region or adjacent regions. For example, instead of competing against each other for the same patients, hospitals in the same region under a common administration could become complementary through focusing in differing specializations. Additionally, patients could be “directed” to the hospitals with lower utilization and/or more affordable prices (not necessarily with lower margins). Consolidation, particularly within regions, also allows for the integration of information systems (including patients records), better communication between doctors and the standardization of processes, translating into a better and more efficient service to the patient.

Another trend that we should expect to continue is vertical consolidation, where insurance companies enter the business of providing health care services, in this case through the acquisition of hospitals. That move allows insurance companies to align their incentives (reduce unnecessary healthcare costs) to those of the hospitals. Additionally, they increase the number of touchpoints with their affiliates to convey healthy practices and focus on prevention.

There are plenty of hospitals that could be targeted by existing groups or health insurance companies. A total of 20 non-government hospitals in Puerto Rico (33% of total) with 28% of total inpatient beds do not belong to any hospital group. There are 13 more that belong to hospital groups of less than 4 hospitals and they accumulate 23% of total inpatient beds. In other words, there is space in the hospital sector for more concentration.

Finally, there is another trend in the United States and Puerto Rico hospital sectors that may put more pressure on revenue margins. That is the increased focus on quality by CMS and other Federal regulators. Based on the available data provided by CMS for Medicare patients, Puerto Rico does not fare well in terms of the quality of services provided by hospitals vis-à-vis hospitals in the United States. In the next insight of this series dedicated to the hospital sector in Puerto Rico we will take a close look at the quality metrics available for hospitals in the Island.


1Based on the American Hospital Association (AHA), community hospitals are defined as all nonfederal, short-term general, and other special hospitals. Other special hospitals include obstetrics and gynecology; eye, ear, nose, and throat; long term acute-care; rehabilitation; orthopedic; and other individually described specialty services. Community hospitals include academic medical centers or other teaching hospitals if they are nonfederal short-term hospitals. Excluded are hospitals not accessible by the general public, such as prison hospitals or college infirmaries.

2Data for hospital in Culebra not available


American Hospital Directory (https://www.ahd.com/); American Hospital Association “Trendwatch Chartbook 2018”


Accuracy and Currency of Information: Information throughout this “Insight” is obtained from sources which we believe are reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. While the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information. The information may change without notice and V2A is not in any way liable for the accuracy of any information printed and stored, or in any way interpreted and used by a user.

to our newsletter

Scroll to Top