MHA: Hospitals’ Financial Condition Deteriorating

The report, which includes data from all 65 acute care hospitals for the period Oct. 1, 2007 through March 31, 2008, reveals that 37{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of hospitals had negative operating margins and 37{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} had negative total margins. In the second quarter of 2008, 66{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} of hospitals experienced a decline in operating margins, and 69{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} saw a decline in total margins. After several years of improving finances, current-year margins for Massachusetts hospitals have taken a turn for the worse, according to MHA President and CEO Lynn Nicholas, FACHE. The median operating margin for Massachusetts hospitals for the period ending March 31, 2008 was 0.9{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} while the median total margin was 1.8{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} — both a decline from the second-quarter 2007 medians of 2.2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} and 3.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}, respectively.

“This is very troubling since positive margins are essential for hospitals to be able to continue investing in critical health care services needed by their communities,” said Nicholas.

“National experts agree that for hospitals to remain financially healthy, margins should be at least 3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}.” According to the MHA, the shrinking margins are due to the growth in hospital expenses far outpacing the increase in revenue from insurers and government programs.

Acute care hospital total expenses increased by 7.6{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} in the aggregate from the second quarter of 2007 to the second quarter of 2008, with payroll and benefit expense — the largest component of hospital expenses — growing by 8.2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}. By contrast, the Medicare hospital inflationary update for 2008 was only 3.3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}. In addition, net patient service revenue increased by 7.5{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} during the same period, according to the MHA. “Clearly, hospitals are operating in a challenging environment,” said Nicholas.

In Western Mass., three hospitals reported losses to the state Division of Health Care Finance and Policy — Baystate Franklin Medical Center in Greenfield, Holyoke Medical Center, and Noble Hospital in Westfield.

In Springfield, Mercy Medical Center reported a loss for the first three months of 2008. Mercy officials noted that their fiscal year corresponds with the calendar year. Area hospitals reporting operating surpluses were Baystate Medical Center in Springfield, Cooley Dickinson Hospital in Northampton, Wing Memorial Hospital and Medical Centers in Palmer, and Baystate Mary Lane Hospital in Ware.