When it comes to hospital profits, geography constitutes a wild card.
Although hospitals' aggregate total profit margin dropped to 4.7% in 1999, its lowest level since 1994 (Dec. 2, p. 2), profits varied wildly by state. Those with cut-throat urban markets and heavy emphasis on academia, such as Massachusetts, New York, Pennsylvania and Rhode Island, recorded meager margins. States with milder competition and booming economies, such as Wyoming and Virginia, yielded beefier earnings.
The numbers are a reminder that despite national factors such as Medicare cutbacks and a nursing shortage, the nation is really a patchwork of local markets (See chart).
For example, New Hampshire hospitals ranked No. 3 with a 12.1% margin. Just 60 miles south, Rhode Island's 12 hospitals were the least profitable nationwide, with a negative 1.7% margin.
New Hampshire Hospital Association President Mike Hill acknowledges that his state's hospitals are in "pretty decent shape." Among the favorable factors, he says, is an uninsured rate of 9% vs. 17% nationally.
Hill also likes to think that the state's hospitals have historically been efficient operators. "Because we started from that position, managed care had perhaps less of an impact on the hospitals financially than they did in other places that were experiencing enormous drops in utilization," he says.
Medicare restraints enacted as part of the Balanced Budget Act of 1997 have hurt, Hill says. In 1995, all hospitals in the state posted operating profits, compared with 18 out of 26 last year, he says.
The "saving grace" is private payers, which shell out $1.23 for every dollar's worth of care, vs. 95 cents paid by Medicare, Hill says. New Hampshire hospitals also are "well-distributed," he adds, making it hard for insurers to walk away from a contract.
By contrast, Rhode Island hospitals are getting 2% less than their costs from private payers, says Ed Quinlan, president of the Hospital Association of Rhode Island. He notes that most of the state's hospitals are high-cost teaching institutions, and there is a large elderly population with a high Medicare HMO enrollment.
In fact, the state's hospitals failed to post a profit even though Rhode Island had the highest insurance rate in the nation last year, with 93% of residents holding coverage.
Rhode Island hospitals contend they are footing the bill for an unstable HMO market. Harvard Pilgrim Health Plan, the state's No. 3 HMO, collapsed in early 1999, and Tufts Health Plan, a distant fourth in size, pulled out of the state because of losses, leaving just two large payers.
Plans have increased premiums by as much as 40% in the past two years while offering providers only modest rate increases, Quinlan says. "Some hospitals have even been offered cuts," he adds.
He says the state's hospitals collectively lost $50 million in 1999, and will lose another $50 million this year, despite a $12 million state Medicaid infusion.
Farther south in No. 2-ranked Virginia, good management and a healthy economy helped to generate strong results, says Katharine Webb, senior vice president at the Virginia Hospital and Healthcare Association.
During the past eight years, hospitals in the state formed strong regional systems such as Roanoke-based Carilion, Norfolk-based Sentara and Falls Church-based Inova, which achieved operating efficiencies and market leverage.
"Our hospital executives have really focused on getting ahead of the curve," Webb says.
But she adds that many small independents are posting negative operating margins, and three declared bankruptcy during the last 18 months. She says about one-fifth of the state's hospitals posted negative operating margins last year.
Hawaii, on the other hand, is hoping for a rebound. Its 32 hospitals were the third least profitable.
The state has been in the grips of a recession in the Pacific Basin since the early 1990s, says Rich Meiers, president and chief executive officer of the Healthcare Association of Hawaii. The state's fabled 3.5% uninsured rate has ballooned to more than 10% because of the recession, Meiers says.
Meanwhile, the state's economy is beginning to turn around. "The tourism business has perked up a little bit from the mainland (U.S.," he says.
The local economy is also key in No. 4-ranked Wyoming, where a booming mineral market has showered state coffers with a $132 million surplus, says Robert Kidd, president of the Wyoming Hospital Association. The majority of Wyoming hospitals are tax-supported.
Plus, Kidd says, utilization is low thanks partly to "a sturdy population (of) mostly ranchers" who "don't like to be in the hospital."