Hospital profit margins fell last year to 4.2%, hitting their lowest level since 1993, according to figures released last week by the American Hospital Association. It marks the fourth consecutive annual drop measured by the trade group.
Hospitals also were busier last year, the data show. Inpatient admissions rose 2.5% in 2000 to 32.6 million, while outpatient visits and emergency-room trips also increased (See special report, p. 28). Meanwhile, the number of community hospitals declined slightly to 4,915. The average length of stay was 5.2 days, unchanged from the previous year.
The percentage of hospitals that lost money-32%-was unchanged from 1999, according to the report.
The data are in the annual AHA publication, Hospital Statistics-2001-2002. The report is based on the association's annual survey of all U.S. hospitals.
The bleak financial news could be used to fuel the industry's fight for more federal funding, although the prospects for relief this year appear slim (See story, p. 24). The AHA is asking Congress for a $16.2 billion boost in Medicare funding between now and 2006 and an additional $11.3 billion allocation to help hospitals prepare to respond to any future terrorist attacks.
"What this year's data illustrate is the fragility of the hospital infrastructure," said Carmela Coyle, the AHA's senior vice president of policy. "We've not seen a rebound that some had expected."
Aggregate revenue for community hospitals grew 6.4% to $368.5 billion in 2000 from $346.3 billion in 1999. Expenses grew by a slightly larger percentage-6.6%-to $353.1 billion, compared with $331.2 billion in 1999. Those figures do not include nursing home operations.
The AHA's numbers conflict with the findings of three credit-rating agencies, which reported earlier this year that hospital margins had leveled off last year. The agencies' figures, however, include only hospitals and health systems whose creditworthiness is rated for investors.
There's also evidence that the industry could be rebounding this year. Solucient, an Evanston, Ill.-based healthcare information company, reported earlier this month that U.S. hospitals enjoyed their greatest profitability since 1998 in the first half of 2001, with an average operating margin of 5.2%. The report is based on data from about 600 hospitals and health systems.
Coyle said the AHA data rebut findings that hospital margins are rebounding.
For example, the Medicare Payment Advisory Commission has argued that Medicare isn't fully responsible for hospitals' financial troubles. In September, the congressional advisory panel issued a memo arguing that hospitals should be enjoying higher margins because they've cut costs by shortening lengths of stay (Sept. 10, p. 10).
The AHA said 59.4% of hospitals lost money on Medicare in 2000, compared with 57.5% in 1999, and Medicare paid 99.1% of costs in 2000, down from 99.9% in 1999.
Medicaid was even less profitable, according to the AHA, with 59.6% of hospitals losing money on the program in 2000, compared with 60.4% in 1999. Medicaid payments also dropped to 95.2% of costs last year, from 95.7% in 1999, the association found.
MedPAC's data on hospital margins for 2000, which would normally be released in December, have been delayed because of changes in cost report forms that were mandated by legislation, said Jack Ashby, the commission's hospital research director. Ashby said last week he expects the commission's first report on 2000 margins to be released no earlier than March.
Partial data for 1999 released earlier this year by MedPAC, however, showed 34.1% of hospitals lost money on inpatient services that year. The agency showed fewer hospitals losing money on Medicare than does the AHA because MedPAC factors in only Medicare-allowable costs, vs. the total cost of providing services that is used by the hospital association.
Ashby said the commission will present updated 1999 figures at its Dec. 14 meeting, where it will make recommendations for 2003 payment levels.
The AHA survey also found that the number of hospitals operating home health agencies, hospices and skilled- nursing units declined. Those with ownership in health plans also fell.