Financial Analysis 2007 News Release

Contact: Joe Martin, Communications Director
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Harrisburg, PA - April 18, 2008 - The statewide total income margin realized by Pennsylvania’s 170 general acute care (GAC) hospitals grew by more than a full percentage point in Fiscal Year 2007 (FY07), rising from 5.39% in FY06 to 6.51% in FY07, according to new figures released today by the Pennsylvania Health Care Cost Containment Council (PHC4).

On a statewide basis, GAC hospitals provided a total of $678 million in uncompensated care in FY07, up 12.2% from $604 million during FY06. Since statewide uncompensated care grew faster than the 6.9% increase in net patient revenue (NPR), uncompensated care as a percentage of NPR increased from 2.17% in FY06 to 2.27% in FY07.

“It is encouraging that, on the whole, Pennsylvania hospitals continued to experience financially healthy margins in FY07,” said David Wilderman, Acting Executive Director of PHC4. “At the same time, the fact that uncompensated care as a percentage of NPR was at its highest rate since FY02 remains an issue of concern.”

Operating margin reflects what hospitals earn from patient care and related operations, such as medical education and office space. Total margin includes both operating and non-operating income. The primary components to non-operating income are investment gains, contributions and the net effect of taxes on for-profit hospitals.

Forty-one hospitals—or 24%—of the 170 reporting hospitals posted negative total margins in FY07. In FY06, there were also 41 hospitals (out of 175) that posted negative total margins.

The number of hospitals with negative operating margins declined from 61 in FY06 to 52 in FY07. 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.

The number of hospitals that sustained average losses over the last three years dropped from 51 at the end of FY06 to 41 at the end of FY07. However, the number of hospitals with three-year average total margins in the tenuous 0% to 2% range grew from 14 to 29. At the other end of the spectrum, the number of hospitals with three-year average total margins over 8% range grew from 16 to 28.

NPR—the revenue hospitals receive for patient care—grew about $1.9 billion or 6.9% during FY07. NPR has grown by 47.2%—or an average of 9.4% per year—over the past five years, while the state’s economy has only grown by 5.1% per year. This means that acute hospital care represents a growing portion of the state’s resources.

Similar to FY06, the improvement in FY07 total margin resulted from improvements in both operating income and non-operating income. Nearly three-fourths (73%) of the increase in statewide total margin was the result of a $341 million growth in operating income. The other one-fourth (27%) was the result of a $127 million growth in non-operating income.

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 the state’s individual general acute care hospitals, will be released later in the spring.