Financial Analysis 2006 News Release

Contact: Joe Martin, Communications Director
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Growth in Patient Revenues Outpacing Growth in PA Economy

Harrisburg, PA - March 28, 2007 - The statewide financial total margin realized by Pennsylvania’s 174 general acute care (GAC) hospitals grew by almost a full percentage point in Fiscal Year 2006 (FY06), rising from 4.58% in FY05 to 5.52% in FY06, according to new figures released today by the Pennsylvania Health Care Cost Containment Council (PHC4). Net patient revenue (NPR), the revenue hospitals receive for patient care, grew about $1.9 billion or 7.2% during FY06, outpacing the growth in Pennsylvania’s economy.

Fifty-five hospitals — or 32% — reported negative operating margins in FY06. For these hospitals, operating expenses were greater than their revenue from patient care and other operations. A disproportionate share of the hospitals with operating losses were small community hospitals in rural areas.

“Even though the statewide total margin grew again in FY06, it continues to be a concern that many of the hospitals with operating losses were small, rural hospitals that are the main source of care in their community,” stated Marc P. Volavka, Executive Director of PHC4. “The fact that reimbursements (net patient revenue) are growing faster than the state’s economy also should raise questions among those who pay for health care.”

NPR has grown by 48.3% or an average of 9.7% over the past five years, while the state’s economy has only grown by an average of 5.1% per year. This means that acute hospital care represents a growing portion of the state’s resources.

Ten fewer GAC hospitals reported negative total margins during FY06 than in FY05. Despite this improvement, 38 GAC hospitals or 22% of the 170 reporting GAC hospitals still lost money during FY06. This is an improvement from three years ago when nearly one-half (48%) of GAC hospitals posted losses, two years ago when 34% lost money, and last year when 27% had negative total margins.

The number of hospitals that sustained average losses over the last three years dropped from 59 at the end of FY05 to 50 at the end of FY06. Similarly, the number of hospitals with three-year average total margins in the tenuous 0% to 2% range fell from 26 to 14. Offsetting this decline at the lower end of the scale, there were 15 more hospitals with three-year average total margins between 2% and 8%.

Over the past three years, the statewide total margin has grown by 3.2 percentage points. Unlike FY04 and FY05, the improvement in FY06 total margin resulted from a combination of a 27.3% ($262 million) improvement in operating income and a 36.4% ($111 million) increase in non-operating income. In FY04, the improvement in total margin was driven primarily by gains in non-operating income from investments and contributions. In FY05, the growth in total margin was the result of an unprecedented 90% increase in operating income.

With the increases in operating and non-operating income in FY06, GAC hospitals received about 75% of the $1.6 billion in FY06 total income from operations, with the remaining 25% coming from non-operating sources.

On a statewide basis, GAC hospitals provided a total of $595 million in uncompensated care in FY06, up 9.7% from $543 million during FY05. Uncompensated care as a percent of net patient revenue also increased from 2.09% in FY05 to 2.14% in FY06.

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.