Operating margins for the nation's strongest not-for-profit healthcare systems last year reached their highest levels since 1997, while weaker hospitals saw worse results, according to Standard & Poor's median financial indicators. The ratings agency said its figures further show a growing gap between the "haves and have nots" in not-for-profit healthcare. AA-rated hospitals had a median operating margin of 3.1%, up from 2.2% in 2002, while A-rated hospitals posted a median margin of 3.5%, up from 2.8%. The BBB median fell to 1.2% from 1.4%, and the median across all speculative credits slipped to -1.3% from -0.9%. The median total margin for AA credits grew to 4.5% from 2.4% because of stock market gains, while total margins for other ratings categories showed little or no change. In a separate report, S&P said it doesn't expect operational improvements to continue at hospitals because of cost pressures, tightening revenue, declining insurance coverage and other factors.
No appeal of St. David's verdict
The U.S. Justice Department decided not to appeal an adverse jury verdict in the St. David's Health Care System tax case, despite filing a notice of appeal last month. "It's finally the end of the road," St. David's Chief Executive Officer Carol Clark said. "We are ecstatic." A Justice Department spokesman would not comment on the matter. A jury in March ruled that not-for-profit St. David's, part owner of six-hospital St. David's HealthCare Partnership in a joint venture with for-profit HCA, deserved tax-exempt status. The government's decision not to follow through with an appeal ends a long dispute. The Internal Revenue Service revoked St. David's tax exemption in 2000, arguing that it no longer operated exclusively for charitable purposes because of the then-4-year-old partnership with HCA. The case has been in the courts since. If St. David's had lost, it could have owed nearly $40 million in back taxes, interest and penalties, Clark said.
West Penn posts first profit
Six-hospital West Penn Allegheny Health System, Pittsburgh, is posting its first annual profit since being cobbled together in the aftermath of the 1998 bankruptcy of Allegheny Health, Education and Research Foundation. In its third quarter ended March 31, West Penn Allegheny earned net income of $12.9 million on revenue of $310.9 million, a 4% profit margin. Officials project that the system will end its fiscal year with up to $20 million in net income and up to a 32% increase in revenue over the previous year. Inpatient volumes are up 5%, although they were expected to be flat for five years when the system was created in 2000, a spokesman said. Officials project more than 82,000 admissions in the system's fiscal 2004, which ends June 30. West Penn Allegheny lost $15.5 million on revenue of $1.2 billion in fiscal 2003.
County tax will aid medical center
Voters in west Contra Costa County, Calif., overwhelmingly approved a $52 annual parcel tax to help ensure the survival of cash-strapped Doctors Medical Center, San Pablo, which runs the county's only full-service emergency room. The property tax, approved by 84% of voters, is expected to raise $6.1 million per year to offset the 131-bed hospital's mounting operating costs. The hospital's future was cast into limbo earlier this year when Tenet Healthcare Corp. announced it would cease to operate the facility after July 31. West Contra Costa Healthcare District ran the hospital for more than 40 years until near-bankruptcy led the district to lease the facility to Tenet in 1997. The district will resume control Aug. 1. Contra Costa is one of several California counties in recent years to turn to ballot measures in an effort to keep its healthcare system afloat. Similar measures were approved in Alameda and Los Angeles, while an initiative in Monterey County fell just short of passage. Maricopa County, Ariz., also passed a tax measure.
Inpatient services resume
East Texas Medical Center Regional Healthcare System said it resumed inpatient services in Gilmer, Texas, nearly 10 years after the hospital there was closed by Columbia/HCA Healthcare Corp. Not-for-profit East Texas Medical, based in Tyler, Texas, bought the facility in rural Upsher County in 1997. The system said it has provided 24-hour emergency care and radiology and laboratory services there but was prevented from providing inpatient services by a deed restriction in place until May 2002. The system said it has spent $6 million since last year to add 34 medical-surgical beds and a three-bed intensive-care unit at the Gilmer facility, as well as respiratory therapy, pharmacy services, materials management, medical records and food service. A physician office building is planned.
Children's advertises concerns
Children's Hospital of Pittsburgh took out full-page advertisements in local newspapers to air concerns that its replacement hospital may fall short of promises made by Children's parent, 18-hospital University of Pittsburgh Medical Center. Children's officials complained in the ads that "UPMC is threatening to pull the rug out from under what promised to be a world-class pediatric hospital," limiting beds and expenditures in a way that "will drastically compromise access to services and quality of care." Children's merged with UPMC in late 2001 on the promise of a new hospital and research building; construction began a year later (for more coverage of UPMC, see story, p. 14). Children's officials said project costs have long been estimated at as high as $475 million. UPMC wants to cap costs at $450 million-still the largest hospital building project ever in western Pennsylvania, said Jane Duffield, a UPMC spokeswoman. Programming changes are up to the Children's faculty and leadership, although UPMC has its opinions, Duffield said. The parties will take the first step in a formal dispute resolution process at a meeting of their boards June 14. Construction has slowed in the meantime.