The nation's hospitals posted aggregate profits of $19.5 billion in 1998, the third-highest level in a decade, new data from the American Hospital Association show.
Those dollars gave hospitals an overall profit margin of 5.7%, again the third-highest in a decade.
But the financial performance of hospitals is off significantly when compared with 1997. That year, hospitals posted record profits of $21.9 billion, giving them a 6.6% margin (Jan. 11, p. 2).
Carmela Coyle, the AHA's senior vice president of policy, predicted overall profits and margins will continue to decline.
"I think we're likely to see this change in direction continue in 1999," she said.
The release of the AHA's new data comes just two weeks after Congress passed a budget bill that included $18.1 billion over five years in federal payment relief for providers, including hospitals and health plans (Nov. 29, p. 3). President Clinton signed the bill into law last week (See story, below).
The AHA was one of the chief lobbying groups that pushed for relief from payment reductions imposed by the Balanced Budget Act of 1997.
A 5.7% profit margin is nothing to get excited about, according to Thomas Prince, a professor at the Kellogg Graduate School of Management at Northwestern University, Evanston, Ill.
Prince served as a consultant for the AHA for 30 years and is still a member of some AHA committees. He has criticized the prospective payment system margin as a barometer of a hospital's financial health because it is based on Medicare cost reports rather than audited financial statements.
Prince said he recommends hospitals have at least a 6% profit margin.
He said the overall 5.7% margin indicated by the AHA masks those hospitals around the country that are in financial distress, because they get lumped in with other facilities that are doing remarkably well.
"Many of the weak hospitals really don't have any economic future," he said.
The AHA published the profit figures in its annual Hospital Statistics guide.
The numbers are based on data collected from 5,015 acute-care hospitals-42 fewer hospitals than were operational in 1997.
The decline in the number of hospitals translated to a 1.5% drop in the number of beds to 839,988 in 1998 from 853,287 the previous year.
Hospitals saw their total expenses grow at a rate that outpaced their total net revenues.
In 1998 total expenses climbed 4.2% to $318.8 billion, while revenues grew at a rate of only 3.2% to $338.3 billion.
Hospitals' rate of growth in gross outpatient revenues outstripped the growth rate in gross inpatient revenues. Gross outpatient revenues climbed almost 10% to $201.9 billion last year from $183.8 billion in 1997. On the inpatient side, total gross revenues jumped 7.1% to $407.6 billion in 1998 from $380.6 billion in 1997.
The number of inpatient admissions grew less than 1% to 31.8 million in 1998 from 31.6 million in 1997.
Total outpatient visits increased by more than 5% to 474.2 million last year from 450.1 million in 1997.