Profit mar­gins hold steady as hos­pi­tals con­tain costs

Not-for-profit hos­pi­tals stay afloat by con­tain­ing costs

Modern Healthcare - - NEWS - Ashok Selvam

Profit mar­gins at the na­tion’s not-for­profit hos­pi­tals held steady in 2011 even as top-line rev­enue slowed sharply, ac­cord­ing to data in the an­nual sta­tis­ti­cal guide re­leased last week by the Amer­i­can Hospi­tal As­so­ci­a­tion.

Hos­pi­tals were able to main­tain fi­nan­cial sta­bil­ity by hold­ing ex­penses in check for the sec­ond straight year, the report showed.

Hos­pi­tals have suc­ceeded in con­tain­ing cost by hold­ing down la­bor costs de­spite a grow­ing staff, said Caro­line Stein­berg, vice pres­i­dent of trends anal­y­sis for the AHA. The num­ber of full-time staff at the na­tion’s 4,973 not-for-profit hos­pi­tals in­creased 1.1% in 2011, bring­ing the to­tal to 4.03 mil­lion.

The num­ber of reg­is­tered and li­censed prac­ti­cal nurses, who ac­count for one in ev­ery four hospi­tal em­ploy­ees, rose to 1.07 mil­lion in 2011, an in­crease of 1.6%. Their ranks rose 2.5% and 4.6% in 2010 and 2009, re­spec­tively, ac­cord­ing to the AHA report.

That helped keep ex­penses in check. Hos­pi­tals re­ported $755.3 bil­lion in rev­enue in 2011, up 3.3% from the pre­vi­ous year. It was one of the slow­est in­creases in years. Hospi­tal rev­enue grew by 5.9% the year be­fore.

Ex­penses, mean­while, grew 3.6% to $702.1 bil­lion in 2011, only slightly higher than the 3.3% growth in ex­penses in 2010 over the pre­vi­ous year. As a re­sult, profit mar­gins barely changed, ris­ing from $52.9 bil­lion, or a 7.2% mar­gin in 2010, to $53.2 bil­lion, or 7%, in 2011.

The AHA fi­nan­cial report is con­sis­tent with find­ings re­leased Fri­day by Stan­dard & Poor’s. Its U.S. Not-For-Profit Health­care Sec­tor Out­look at­trib­uted slower top-line rev­enue growth to con­straints on Medi­care and Med­i­caid re­im­burse­ments and lower com­mer­cial in­surance rates.

Martin Ar­rick, man­ag­ing di­rec­tor for the rat­ings ser­vice, sug­gested de­clin­ing rev­enue in the hospi­tal sec­tor is re­lated to the Pa­tient Pro­tec­tion and Af­ford­able Care Act’s em­pha­sis on am­bu­la­tory set­tings rather than hospi­tal ad­mis­sions for de­liv­er­ing care. Keep­ing pa­tients out of hos­pi­tals will cut rev­enue in the short term, even if that means be­ing in bet­ter po­si­tion for long-term success.

“If you’re very suc­cess­ful at that, it con- tributes to de­clin­ing ad­mis­sions,” Ar­rick said. “If the bulk of your rev­enues come from fee for ser­vices, you’ve shot your­self in the foot, even if you’re try­ing to do the right thing in the big­gest sense of the word.”

The trend was re­flected in the AHA’s in­pa­tient ad­mis­sions data. Ad­mis­sions fell by 306,342 in 2011, nearly a 1% de­crease from 2010.

The con­strained re­im­burse­ment cli­mate is ex­pected to have a ma­jor im­pact on hos­pi­tals’ ac­cess to credit mar­kets. In 2013 and be­yond, S&P’s Ar­rick projects the num­ber of hos­pi­tals re­ceiv­ing ei­ther credit up­grades or down­grades to be about the same. Since 2010, S&P up­grades have out­num­bered down­grades.

Hos­pi­tals may feel they’ve cut all they can, but ef­fi­cien­cies can still be im­proved, said Dale Surowitz, chief op­er­at­ing of­fi­cer for Prov­i­dence Health & Ser­vices’ South­ern Cal­i­for­nia di­vi­sion. Surowitz touts fur­ther physi­cian en­gage­ment. “We have to find dif­fer­ent ways to pro­vide care and it’s go­ing to have to be ac­com­plished by work­ing col­lab­o­ra­tively in part­ner­ship with our physi­cians,” he said.

The AHA also re­ported last week that com­mu­nity hos­pi­tals of­fered about the same ra­tio of un­com­pen­sated care as pre­vi­ous years de­spite slow­ing top-line rev­enue growth. Un­com­pen­sated care to­taled $41.1 bil­lion or 5.4% of top-line rev­enue in 2011, no dif­fer­ent than the 5.4% of top-line rev­enue or $39.3 bil­lion given in un­com­pen­sated care in 2010.

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