Hospital operating profits continued their nose dive in 1999, dropping 27%. That follows a drop of 28% in 1998, according to an analysis by HBS International, a healthcare outcomes management firm based in Bellevue, Wash.
In the two years from 1997 to 1999, the average operating profits of U.S. hospitals were chopped almost in half, declining to 3.2% from 6.1%.
"Operating expenses are keeping pace with inflation, and operating revenues are flat," said Gregg Bennett, chief executive officer of HBSI, which released the data exclusively to MODERN HEALTHCARE.
Hospitals in the Northeast saw their operating profits drop to 0% in 1999 from 3.35% in 1997. Hospitals in the South Atlantic and West have sustained the least financial damage. Facilities in the South Atlantic saw their profits drop to 4.42% from 5.58% over the two-year period, and hospitals in the West saw profits drop to 3.75% from 6.02%.
The effects of the federal Balanced Budget Act of 1997 were the same everywhere, Bennett said. Some parts of the country cut expenses more quickly than others, he added. The Northeast, populated by large and often unionized hospitals, did not change its operating style fast, and facilities there are paying the price.
Operating results vary by sizes of hospitals. Hospitals with more than 300 beds have suffered a much sharper loss in profits than hospitals with fewer than 150 beds.
"The size is a BBA issue, I think," said Steve Hatch, principal at Arista Associates, a Northbrook, Ill.-based healthcare consulting firm. "The larger hospitals have gotten hit with medical-education cutbacks, skilled-nursing-facility cutbacks, rehabilitation cutbacks. It's the larger hospitals that typically have those components, whereas smaller ones by and large don't have those pieces."
The findings are based on a sampling of more than 400 hospitals.