The recent financial results of hospitals in Pennsylvania tell a tale of two states, with the rich getting richer and the less fortunate slipping further into fiscal trouble.
In a report issued late last week, the Pennsylvania Health Care Cost Containment Council, a state agency, examined the audited financials of acute-care hospitals for the three fiscal years ended June 30, 1998, and found a growing gap between poor and affluent hospitals.
The analysis of hospital finances in Pennsylvania, the location for some of healthcare's most dramatic meltdowns such as the $1.5 billion bankruptcy of Allegheny Health, Education and Research Foundation, underscores a national divergence between rich and poor hospitals (June 7, p. 34).
The Pennsylvania data suggest that "continued consolidation in the industry can be expected," said Marc Volavka, council director. His conclusion stems from the finding that almost half, or 20 of 43 hospitals, that lost money over the three fiscal years ended in 1997 merged or affiliated with other health systems. And that merger forecast seems likely to apply to underperforming hospitals not just in Pennsylvania but across the country.
The ranks of the money-losing hospitals in Pennsylvania are growing.
For the three years ended in fiscal 1998, the hospitals that lost money increased by six to 49, or a quarter of all acute-care facilities in the state.
The biggest money-loser, as measured by total margin over three years, was Pennsylvania Hospital, Philadelphia, which posted an annualized negative total margin of 22.4%.
Still, the average hospital in the state made money, though quite a bit less than in previous years. The average total profit margin for all 199 acute-care hospitals was 2.7% in fiscal 1998, down from 3.8% in fiscal 1997. Total margins take into account all sources of revenues.
The average operating profit margin of Pennsylvania hospitals, meanwhile, dropped to 1.1% in fiscal 1998 from 2.9% in the previous fiscal year.
Despite obvious troubles, about a fifth of hospitals in Pennsylvania did quite well. The number of hospitals with three-year total margins averaging more than 8% each year almost doubled to 30, or 19% of all hospitals, in fiscal 1998, compared with 18 for the trailing three years ending in 1997.
Lankenau Hospital, Wynnewood, Pa., led the pack with a whopping total annualized margin of 20.2%
All margins aren't created equal, according to the council. The most important factor in determining hospital health was revenue growth.
Expense reduction, the current rage at hospitals around the country, did not guarantee thriving institutions. To the contrary, according to the report, "Changes in patient revenue appear to have a significantly greater effect on hospital income than expenses."