Hospital Sisters Health System's operating margin sinks

Hospital Sisters Health System, a 13-hospital network headquartered in Springfield, Ill., barely kept its head above water in its most recent fiscal year as declining admissions and rising expenses ate away at revenue.

HSHS operates hospitals and physician practices in Illinois and Wisconsin. The system said Monday in its audited financial statement that its operating margin in fiscal 2014, which ended June 30, was 0.8%—down from the already slim 1.1% margin posted in 2013.

Admissions at HSHS have declined 7% over the past three years, which executives attributed in part to Medicare's two-midnight rule. The policy, which went into effect last year, essentially says that hospitals can only bill Medicare for inpatient services if an admitting physician expects a patient will have to stay in the hospital for at least two midnights.

Hospitals have bemoaned the rule, calling it administratively complex. HSHS is not alone in citing the two-midnight policy for lower admissions and revenue this year. Wake Forest Baptist Medical Center, Winston-Salem, N.C., and Cone Health, Greensboro, N.C., for example, said inpatient volumes have rapidly shifted toward outpatient or observation cases at their systems because of the rule.

HSHS' operating surplus dropped 22.7%, from $21.6 million in 2013 to $16.7 million this past year. Systemwide revenue increased 4.1%, totaling $2.09 billion. The two largest hospitals within HSHS—430-bed St. John's Hospital in Springfield, Ill., and 260-bed St. Elizabeth's Hospital in Belleville, Ill.—were the biggest drains. St. John's lost $12.2 million this past year, while St. Elizabeth's lost $16 million. The HSHS Medical Group was also $20 million in the red.

However, the favorable financial markets bailed out HSHS' sluggish year, a trend seen at many other not-for-profit health systems. HSHS' total surplus, including investment returns, increased 36% to $228.3 million.

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