Stock market drop takes toll on hospitals

Posted: May 13, 2010

Hospitals have done better than most businesses during the recession, but the tough times - particularly the stock market decline - took a toll in the last fiscal year.

A new annual report from the Pennsylvania Health Care Cost Containment Council on the financial health of the state's hospitals found that total margins, which include investment income, fell from 4.7 percent in fiscal 2008 to 2.08 percent in fiscal 2009. The average operating margin, which reflects only what hospitals earn from and spend on patient care, fell less, from 3.99 percent in fiscal 2008 to 3.52 percent last fiscal year.

Forty-four percent of the hospitals reporting to the state agency had negative total margins, up from 30 percent the previous year.

Hospital consultants said margins likely were improving now as the stock market rises. Like many other entities, hospitals invest some assets in stocks. Those investments buoyed their earnings during the market boom.

Only about a quarter of the 41 hospitals in this region had total margins above 4 percent. Experts consider that the minimum for a financially healthy hospital.

The Hospital and Healthsystem Association of Pennsylvania immediately issued a news release calling for strong government funding of hospitals.

Kenneth Braithwaite, who runs the association's Delaware Valley Healthcare Council, said it was bad timing for Gov. Rendell's proposal to cut $66 million from Medicaid hospital payments. As jobs have been lost, more people have become eligible for Medicaid. The government insurance program for the poor often pays hospitals lower rates than Medicare or private insurers.

"Hospitals are still struggling," Braithwaite said. "We're not out of the woods yet."

Braithwaite said patients had been cutting back on elective treatments and preventive care. The council's report shows a decline in patients. Inpatient discharges at the region's hospitals fell from 1.83 million in fiscal 2008 to 1.79 million last year. Operating income also fell, from $1.33 billion in fiscal 2008 to $1.23 billion in 2009.

One thing that grew was the amount of uncompensated care, which includes unpaid bills and charity care. It rose 7.9 percent, from $748 million in fiscal 2008 to $807 million last fiscal year.

Locally, among the hospitals with the strongest operating margins are: Abington Memorial at 4.61 percent; Main Line Health's Bryn Mawr Hospital at 11.57 percent; Lankenau Hospital at 8.87 percent; Paoli Hospital at 17.15 percent; Phoenixville Hospital, 11.63 percent; Pottstown Memorial, 19.88 percent; St. Luke's Quakertown, 9.61 percent; St. Mary Medical Center, 6.5 percent; Aria Health, 7.38 percent; Fox Chase Cancer Center, 9.54 percent; Hospital of the University of Pennsylvania, 9.2 percent; and St. Christopher's Hospital for Children, 5.78 percent.

Most of the local hospitals that were in the red were for-profits. Taxes were included in the calculation plus gains or expenses from the parent organization. The hospitals with negative operating margins were: Brandywine, -4.85 percent; Jennersville Regional, -6.66 percent; Lower Bucks, -6.64 percent; Mercy Fitzgerald, -1.89 percent; Riddle Memorial, -3.41 percent; Chestnut Hill, -4.74 percent; Eastern Regional Medical Center (Cancer Treatment Centers of America), -2.52 percent; Roxborough Memorial, -6.09 percent; and St. Joseph's, -2.09 percent.

Contact staff writer Stacey Burling at 215-854-4944 or

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