PENNSYLVANIA Report eyes decline of hospital finances

Overall revenue rose, but profits dropped, the report says.
HARRISBURG (AP) -- The financial health of Pennsylvania's acute-care hospitals worsened last year, reflecting a steep drop in the income from outside revenues, such as investments and charitable donations, according to a state agency that studies health care.
The 185 general acute-care hospitals studied reported a drop of 82 percent in nonoperating income, from $265.6 million in 2001 to $46.5 million last year, a slide driven largely by poor stock market performance and a decline in securities values, says the Pennsylvania Health Care Cost Containment Council.
Because 170 acute-care hospitals are nonprofit, they rely heavily on investments and charitable donations to help fund operations, said the agency, which released some figures from a longer report and analysis due out in the spring.
A look at the figures
The hospitals' overall revenue for 2002 was about $21.5 billion, up from about $20.2 billion in 2001, said agency spokesman Joe Martin. Profits were down to $484.3 million in 2002 from $663.6 million in 2001, Martin said.
Expenses were up to about $21 billion in 2002 from about $19.5 billion in 2001, Martin said.
While revenues covered expenses, a decline in overall profit margins could pose trouble in the future for hospitals wishing to upgrade facilities or equipment, the agency reported.
The report covers the fiscal year ending June 30. While overall profit margins are typically much higher than operating margins, the margin was slimmer last year than in recent years.
The overall profit margin declined to 2.3 percent from 3.3 percent after two years of increases. Operating profit margins increased a half-percent last year from 2 percent, its third straight year with an increase. Both operating and overall profit margins remain lower than in the mid-1990s, however.
The number of hospitals losing money last year increased, with 76, or 41 percent, reporting a loss, up from 34 percent in 2001.
Patient revenue up
Patient revenue grew nearly 8 percent in 2002, although the amount of uncompensated care, which includes charity care and bad debt, also grew by 12.9 percent.
Carolyn F. Scanlan, president and chief executive of the Hospital & amp; Healthsystem Association of Pennsylvania, an industry group, blamed thin margins on the rising costs of medical liability insurance costs, regulatory compliance and disaster preparedness.
She also said hospitals face costly shortages of health care workers and inadequate Medicaid and Medicare reimbursements.
"These expense pressures ... have forced hospitals to increase their dependence on investments," said Scanlan. But, she noted, the stock market's poor performance has "severely damaged this critical financial safety valve for hospitals."