Financial Analysis 2005 Preview News Release


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


Harrisburg, PA - March 8, 2006 - The statewide financial total margin realized by Pennsylvania’s 176 general acute care (GAC) hospitals grew by more than a full point in Fiscal Year 2005 (FY05), rising from 3.22% in FY04 to 4.61% in FY05, according to new figures released today by the Pennsylvania Health Care Cost Containment Council (PHC4). Gains from hospital operations were largely responsible for the increase, rising to $980 million in FY05, up from $500 million in FY04.

“In FY05, statewide average total and operating margins reached their highest levels since FY94, when PHC4 began publicly reporting these measures for all hospitals,” stated Marc P. Volavka, Executive Director of PHC4. “The growth in FY05 financial margins was driven by a 90% increase in operating income.”

The statewide operating margin grew from 1.99% in FY04 to 3.59% in FY05. Operating income improved because GAC hospitals collectively posted a 7.3% increase in operating revenue while operating expenses increased by about 5.6%.

After a nearly ten-fold increase in non-operating income from roughly $34 million in FY03 to $324 million in FY04, non-operating income decreased about 9.6% to a little over $290 million in FY05. As a result, in FY05, non-operating income comprised about 23% of the total income realized by hospitals, compared to the previous year when it made up 39% of the total income. Operating income is derived primarily from payments from the federal Medicare program, the Commonwealth’s Medical Assistance Program and third-party commercial insurance companies. Non-operating income comes mainly from investments, endowments and charitable contributions.

Thirteen (13) fewer GAC hospitals reported losses during FY05 than in FY04. Despite this improvement, 48 GAC hospitals - or 27% - lost money during FY05. Still, this is an improvement from two years earlier when nearly one-half (48%) of GAC hospitals posted losses and last year (FY04) when 34% lost money.

“It is positive that more hospitals are doing better financially,” noted Mr. Volavka. “However, it should still be a concern that 27 percent of Pennsylvania hospitals are losing money.”

While the number of hospitals that sustained average losses over the last three years dropped from 66 at the end of FY04 to 59 at the end of FY05, there was little change in the number of hospitals with three-year average total margins in the 2% to 6% range. There were, however, more dramatic changes in the number of hospitals posting three-year average total margins in the 0% to 2% range. Compared to FY04, 11 fewer hospitals had three-year average total margins in this range at the end of FY05. At the other end of the spectrum, 14 more hospitals had three-year average total margins above 6%, bringing the total to 35 out of the 175 hospitals that operated over the three-year period.

On a statewide basis, GAC hospitals provided a total of $541 million in uncompensated care in FY05, up 3.7% from $521 million during FY04. Uncompensated care as a percent of net patient revenue dropped slightly, however, from 2.16% in FY04 to 2.09% in FY05.

PHC4 is an independent state agency charged with addressing the cost and quality of health care in Pennsylvania. The numbers released today are aggregate, statewide numbers. The full Hospital Financial Analysis, containing measures specific to all general acute care hospitals in Pennsylvania, will be released later in the spring.