Financial Analysis 2004 News Release


Contact: Joe Martin, Communications Director
717-232-6787 or


Harrisburg, PA - April 29, 2005 - The statewide total financial margin realized by Pennsylvania’s general acute care (GAC) hospitals grew by more than a full point in FY04, rising from 2.30% in FY03 to 3.37% in FY04, according to the latest hospital financial figures released today by the Pennsylvania Health Care Cost Containment Council (PHC4). This improvement was driven by large gains in non-operating income, which rose from $34 million in FY03 to $330 million in FY04. Increases in net patient revenue kept pace with operating expenses at 8% respectively statewide. Medicare revenue increased by only 4.1%, while substantial increases in revenue from Commercial health insurance plans (10.6%) and the state's Medical Assistance program (15.2%) made up the difference.

“The growth in Medicare revenue continued to lag far behind that of other third-party payors,” stated Marc P. Volavka, Executive Director of PHC4. “Commercial health plans have emerged as the single largest source of hospital net patient revenue, supplanting Medicare.”

The statewide operating margin fell slightly, from 2.16% in FY03 to 2.10% in FY04. However, the statewide total and operating margins in FY04 were appreciably affected by “merger, impairment and other unusual charges” posted by a single hospital system: Tenet Health Systems.

Although non-operating income caused the statewide total margin to rise in FY04, operating gains were primarily responsible for pulling many hospitals out of the red during FY04. Thirty-eight (38) hospitals produced positive total margins in FY04 after posting losses in FY03. Improvement in operating income was the primary factor that brought 26 of the 38 hospitals into the black during FY04. Conversely, operating income was the primary factor that caused ten of eleven hospitals to post losses in FY04 after being in the black in FY03.

“Fewer hospitals posted losses in FY04 than FY03,” stated Mr. Volavka. “However, one year of improved margins does not constitute a trend, and the continuing lag in Medicare reimbursements should send out red flags, but hopefully these gains will be sustained going forward.”

Managed care plans continued to drive the increases in patient revenue. Commercial managed care plans, together with managed care plans funded by Medicare and Medical Assistance, provided almost half of the statewide patient revenue during FY04. However, managed care plans were responsible for 70% of the increase in patient revenue during FY04.

The average revenue per discharge grew 11.9% for Commercial managed care plans, 9.4% for Medical Assistance managed care plans and 6.4% for Medicare managed care patients. In contrast, the overall statewide average revenue per discharge increased by 5.2%.

Other Highlights

The Pennsylvania Health Care Cost Containment Council is an independent state agency charged with collecting, analyzing and reporting information that can be used to improve the quality and restrain the cost of health care in Pennsylvania. Copies of Financial Analysis 2004, Volume One are free and are available on the Council’s website at or by calling PHC4 at 717-232-6787.