The financial stability of New Jersey hospitals is slipping because of insufficient Medicaid and Medicare reimbursements, charity-care costs and discounts given to managed-care plans, according to a new analysis by the New Jersey Hospital Association.
But observers of New Jersey's healthcare scene said that hospitals' financial condition is actually improving.
In its report, the NJHA said its 100 hospital members aren't adequately compensated for the cost of doing business. New Jersey hospitals lose about $450 each time they treat a Medicare patient, it said. Hospitals also provide more than $600 million in charity care that isn't subsidized, it said.
To make up for Medicare shortfalls, New Jersey residents pay about $800 on each bill. They pay another $1,136 to cover unfunded charity-care costs.
But the NJHA said these cost shifts are insufficient. For a sample hospital with a $102 million budget, underfunded care results in a $4.8 million loss in 1994. The loss reflects $1.59 million in reduced state subsidies, $458,000 in Medicaid reductions and $3.8 million in discounts. The analysis assumes that the hospital has controlled the growth of expenses, reduced length of stay and maintained the same volume of patients.
With increased managed-care penetration, hospitals' financial condition could erode further, the NJHA said. Hospitals with the smallest base of charge-paying patients and payers won't be able to collect sufficient revenues and will be at risk of insolvency, it said.
In New Jersey, hospitals get 6.8% of their net revenue from managed-care plans, compared with a national average of 10%.
The NJHA called for business, labor and insurance companies and hospitals to work together to stop further erosion of Medicare and Medicaid funding and seek full coverage of charity care.
Underpayment is a cause for concern, said Steve Fillebrown, deputy director of research and information services at the New Jersey Health Care Facilities Financing Authority. However, data compiled by the authority show that hospitals' financial condition has improved.
For the period ended Sept. 30, 1993, the median net profit margin for a group of 81 New Jersey hospitals was 3.6%, compared with 1.63% a year earlier. The median operating margin was 3.05%, up from 0.93% in the year-ago period.
"Negotiations between hospitals and managed-care plans quite frankly are making the system better" because hospitals are forced to cut costs and improve operations to attract managed-care providers, said Dale Florio, legislative council to the New Jersey HMO Association.
The strain that many hospitals are feeling results from the lack of hospital, physician and insurance integration, said Henry Golembsky, M.D., director of the integrated delivery systems practice of APM, the New York-based management consulting firm. Although some integrated networks have formed, managed care is still in its early stages of development in New Jersey, he said. For the most part, insurance companies still bear the risk for individuals' cost of care and can demand discounts, he added.