Suburban hospitals in Southwest Pennsylvania did better financially in the past fiscal year but trouble is on the horizon, said the new director of the Hospital Council of Western Pennsylvania.
A.J. Harper, who replaced Dr. Ira Lawson in July at the Warrendale-based hospital advocacy organization, said, "It's been a very good year for suburban hospitals compared to the past three or four years" when hospitals consistently reported losing money.
However, next year the state expects a massive reduction in Medical Assistance payments -- between $500 million and $900 million -- and that will hurt cash-strapped facilities and those that have been holding their own financially.
Fewer hospitals are losing money, but across Pennsylvania total operating margins for hospitals improved by only 1 percent from 2003 to 2004, according to the Pennsylvania Health Care Cost Containment Council, which tracks hospital finances.
The council said 38 hospitals reported making money in 2004-05 after losing money the prior year.
For years, hospital CEO's have kept a close eye on the bottom line, trying to increase revenue while reducing expenses. The most closely watched category is total operating margin, an important financial barometer because it indicates how well a hospital is performing. Total operating margin is operating income and revenue from other sources such as investments.
The future looks good for some hospitals, Harper said.
Excela Health, which is a merger of Westmoreland Regional Hospital in Greensburg, Latrobe Area Hospital and Frick Hospital in Mt. Pleasant, Westmoreland County, had a profit margin of 1.3 percent in 2004-05 and plans to build a $400 million facility by 2010.
Butler Hospital also is planning a new facility. Aliquippa Hospital in Beaver County rebounded from bankruptcy last year. The hospital increased its operating revenue by more than 4 percent and cut operating expenses by nearly 8 percent.
Harper said Aliquippa was successful because it added new treatment programs to generate more revenue, such as geriatric-psychiatric treatment and behavioral health units.
Perhaps the fastest growing and most lucrative area is imaging, he said. "Procedures that used to be done in the operating room are now being done by radiologists," Harper said.
Not every hospital has been so fortunate.
Mercy Jeannette Hospital, part of the Pittsburgh Mercy Health System, has had financial problems as has its parent company, the Pittsburgh Mercy Health System, which had revenue of $239 million but operating expenses of more than $271 million.
Mercy Jeannette lost money the past three years and had a negative total operating margin of more than 6 percent. Uniontown Hospital in Fayette County also lost money with revenue of $88 million, versus $89 million in expenses.
Brownsville General Hospital in Fayette County was on the brink of closure when new investors stepped in, only to be forced to close in January after it became Tara Hospital and converted to for-profit status in 2005.
Brownsville accumulated more than $8 million in debt and had revenue of $19 million versus $21 million in expenses in its last fiscal year as a nonprofit entity.
Another Fayette County hospital, Highlands in Connellsville, said the facility "cannot continue to sustain losses" at its 2004 rate although its cash flow has improved, according to the council.
Armstrong County Memorial Hospital in Kittanning had three consecutive years of losses, but had an operating margin of less than 1 percent by limiting expenses to a 3.3 percent increase while raising operating revenue by 7 percent, according to the cost containment council.
Greene County Memorial Hospital in Waynesburg was purchased by Essent Healthcare of Nashville, Tenn., and converted into a for-profit enterprise.
Prior to the purchase, the facility saw its revenue drop by more than 7 percent while its expenses grew by nearly 4 percent.
Some suburban hospitals -- which treat large numbers of the poor and uninsured -- face serious financial problems if predicted shortfalls in reimbursement for Medical Assistance turn out to be true.
Harper said initial estimates of $1 billion were predicted for Medical Assistance cuts and any reductions will have a "trickle down" effect even on hospitals that have their finances under control. Medical Assistance only pays for 75 percent of a hospital's treatment costs.
He said the federal government is looking for $10 billion to offset the expenses of handling last year's hurricanes and may siphon off funds earmarked for health care for the poor.
Harper said hospitals can expect "an attack on the bottom line" because of the impending cuts.
"When you get less from the feds you also have a loss in state funds because of the match required. I expect the cuts to be big, and I expect them to hurt," he said.
Suburban hospitals also face added pressure from ambulatory surgery centers which, administrators complain, have drained away revenue by performing medical procedures that once were the sole province of hospitals.
The number of centers has increased from 113 in 2003 to 177 in 2005, according to the council. Patient volume rose from 289,000 in 2001 to more than 500,000 in 2003.
"That's the biggest issue for hospitals," Harper continued. "They're skimming commercial payers off the top. They don't take (Medical Assistance) patients or the uninsured. They don't have the overhead that hospitals have and they only serve a certain population."
