Some hospital executives and area health-care experts worried that the council's report could give policymakers the false impression that hospitals had returned to financial health and did not need more aid from the Commonwealth.
Despite the gains, more than one-third of the hospitals, or 65 facilities, lost money in fiscal 2000, the study found. And 66 hospitals had negative average margins during the last three years.
Another troubling finding for hospitals, particularly those in cities such as Philadelphia, Chester and Pittsburgh, was that uncompensated care grew by about $66 million to a total of $896 million in 2000.
That represents the cost to hospitals of providing care for uninsured and underinsured people for whom the facilities do not get fully reimbursed.
And the experts cautioned that the small operating margins might be fleeting because labor, energy, malpractice insurance premiums, and other costs have increased significantly since last June.
Also, the stock market's slide means hospitals cannot rely on investment income as a financial safety net.
"Hospitals in 2000 did a good job of keeping their costs down, but it is unlikely that that will continue," said Michael D. Rosko, professor of health administration at Widener University. "Last year's slim operating margin is nothing to be comfortable with, and it certainly could be a one-year aberration in the broader downward trend."
Rosko said that the council's report might give policymakers the sense that the state's hospitals are out of financial danger.
"This actually could be counterproductive," Rosko said. "Many politicians, if they do not look at the situation in depth, could say the bottom lines are improving and the situation may not be as important as before."
That also worries hospital executives, since the report was issued as the legislature begins debate of next year's budget and also decides how to spend the state's share of the nationwide settlement with tobacco makers.
"Overall the report demonstrates how razor thin hospital margins remain," said Andrew Wigglesworth, head of the Delaware Valley Healthcare Council, which represents hospitals and health systems in southeastern Pennsylvania.
And, he said, with expenses going up, it is particularly important that the legislature act now to use tobacco settlement funds for health care and to boost Medicaid spending to cover the actual cost of providing the care.
The state's share of the 1998 settlement of state lawsuits against tobacco companies was $11.2 billion. It has received $836 million so far. The states had sued to recover the costs of treating sick smokers.
Gov. Ridge has proposed using about half of the tobacco-settlement money to help uninsured people obtain health insurance and to increase payments to hospitals for providing uncompensated care.
Wigglesworth said it was important for the legislature to act quickly on those issues. He also said that the council's report should be viewed in the context of rising health-care costs that could cause more financial trouble for the state's hospitals.
"The situation now is significantly worse from the already bad situation," he said.
Josh Goldstein's e-mail address is email@example.com.