HOSPITAL FINANCES: Operating Margins Show 45% Drop
Hospital operating margins plummeted 24% in 1998 in the wake of Medicare reimbursement cuts enacted in the Balanced Budget Act of 1997, according to new financial data collected from 437 mostly nonprofit hospitals across the country. HBS International Inc. (HBSI) found that operating margins slid steadily over the four quarters of 1998, dropping from an average Q1 posting of 6.77% to 2.9% in Q4. Compared to data collected in Q4 1997, hospital operating margins declined 45% for the same period in 1998, with 27% of hospitals reporting operating margins in the red. "This is the third straight quarter of significant declines in hospital profitability," said Gregg Bennett, president and CEO of HBSI. "We see no indication that this trend will turn around soon," he said, adding that last year marked "the most significant decline since ... 1993." Carmela Coyle, senior vice president for policy at the American Hospital Association said the organization "know[s] that the full impact of recently enacted lower Medicare payments [have] not yet been felt."
By Size and by Region
HBSI found that when the data were analyzed in terms of hospital size and region, the largest hospitals experienced the most financial strain, as did hospitals in mid-Atlantic and southern states. According to the survey, Q4 operating margins for hospitals with 300 or more beds dropped 51% compared to the same period in 1997, while hospitals with between 100 and 299 beds reported a 45% decline and hospitals with fewer than 99 beds posted a 31% decline. Hospitals in Alabama, Kentucky, Mississippi and Tennessee fared worse than facilities in other states, with the average Q4 operating margin plummeting 177% between 1997 and 1998. The analysis also found that New Jersey, New York and Pennsylvania saw steep declines, with operating margins dipping 109% between the fourth quarters of 1997 and 1998. The only region that did not experience declining margins was the South Atlantic: in Delaware, the District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia, hospital operating margins increased an average of 3.4% (HBSI release, 3/15).