The 5.7% aggregate total profit margin posted by the nation's hospitals in 1998 masks more profitable regions of the country where profits topped 8%, according to a MODERN HEALTHCARE analysis of recently released American Hospital Association data. But the margin also disguises poorly performing areas where margins dipped as low as 1.7% last year.
"The healthcare environment is an incredibly complex one, and we can no longer simply look at a set of aggregate statistics and necessarily draw one general conclusion," said Carmela Coyle, the AHA's senior vice president of policy.
This widely varying financial performance comes amid a nationwide drive by hospitals to gain relief from Medicare payment changes imposed the Balanced Budget Act of 1997.
The hospital industry's pleas were heard when Congress passed a budget bill last month that included $18.1 billion over five years in Medicare and Medicaid payment relief for providers, including hospitals and health plans. Hospitals have vowed to seek even more relief next year.
Colorado hospitals were among the most vocal lobbying for payment relief from the budget law, which was to phase in spending limits over five years.
"You don't want to wait to complain until the fifth year when you've got an absolute crisis on your hands," said Larry Wall, president of the Colorado Health and Hospital Association.
According to AHA data, Colorado didn't have much to complain about. Hospitals there posted an 8.8% profit margin in 1998, down from 10.1% in 1997. Total profits include investment income and operating income.
Wall said data the state association collected from hospitals say otherwise. According to those figures, Colorado hospitals had a total profit of 6.1% in 1998, down from 8.1% the previous year.
Colorado is in a region that fared well overall last year. The eight-state mountain region saw its profit margin increase slightly to 8.5% from 8.4% in 1997, according to the AHA.
Nevada, also part of the mountain region, posted a 7.1% margin in 1998, which was down significantly from 1997, when the state had an 11.6% profit, AHA figures show.
But a recent report from the Nevada Division of Health Care Financing and Policy paints a rosier picture: For the fiscal year ended June 30, the state's 24 acute-care hospitals saw their profits rise 14.7% to $63.2 million from $55.1 million the previous year.
The AHA data, released last month in its annual hospital statistics book, divides the country's 5,015 acute-care hospitals into nine census regions.
But Coyle points out that even within a region, financial performance varies between states and between hospitals within states.
"You really now have to look hospital by hospital and factor by factor," Coyle said.
Some of the reasons for the geographic disparity include booming population growth, managed care, a high concentration of teaching hospitals and overbedding.
Coyle added that in 1998, 26% of all hospitals had a negative total margin, compared with 20% in 1997.
Thomas Prince, a professor at Northwestern University in Evanston, Ill., who has served as a consultant for the AHA, has said that hospitals should have at least a 6% total profit margin (Dec. 6, p. 2).
The 5.7% overall margin hospitals posted nationwide last year was the third-highest in a decade, although it did mark a decline from 1997 when the margin was 6.6%.
Jody Madala, an analyst at New York-based bond-rating agency Fitch IBCA, said a lack of managed-care penetration helped build a profit belt in the Southeast.
On the flip side, she said, "It's generally fair to say the Northeast is a tough market . . . there are a lot of hospitals, a lot of competition, a lot of managed care."
The mid-Atlantic region, which includes New Jersey, New York and Pennsylvania, saw its overall margin drop to a frighteningly low 1.7% in 1998, down from just 3% in 1997.
New Jersey's 0.7% total profit margin put it dead last in the already-low-profit Mid-Atlantic region.
The New Jersey Hospital Association is reporting an even more dire situation. Its figures show the state's hospitals have a negative margin of 0.5%.
About 60% of New Jersey's 82 hospitals lost money on operations last year, mainly because of a $175 million Medicare payment reduction, two bankrupt HMOs and an increase in charity care, said Ron Czajkowski, a state association spokesman.
But overbedding may be New Jersey's biggest problem. A governor's advisory commission reported last month that one third of the state's hospital beds were unfilled, costing $1 billion annually.