News Release - Non-General Acute Care Facilities Volume Two

FOR IMMEDIATE RELEASE

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

FINANCIAL MARGINS FOR REHABILITATION AND PSYCHIATRIC HOSPITALS DECLINE; AMBULATORY SURGERY CENTERS REMAIN CONSTANT

Harrisburg, PA - August 20, 2003 - A new report from the Pennsylvania Health Care Cost Containment Council shows a decrease in financial margins for the state’s rehabilitation and psychiatric facilities during Fiscal Year 2002. The average operating margin for rehabilitation hospitals dropped from 7.92% in FY01 to 6.03% in FY02, and the average operating margin for psychiatric hospitals dropped from a minus 0.08 in FY01 to a minus 1.11% in FY02. The average operating margin for PA's Ambulatory Surgery Centers (ASCs) remained relatively constant during FY02.

“Unlike FY01 when higher third-party payments boosted statewide operating margins, average payments to rehabilitation and psychiatric hospitals remained unchanged or declined in FY02 while expenses grew,” stated Marc P. Volavka, Executive Director of PHC4. “ASCs performed remarkably well - the 65 surgery centers in business for more than two years prior to the end of FY02 had an average pre-tax operating margin of 13.8%.”

The number of ASCs grew by 29% in FY02, contributing to an increase of 40.5% more patient visits than in FY01. However, the care provided by ASCs is still equal to one percent of the outpatient visits to all licensed hospitals.

Statewide average total margin also declined for both rehabilitation and psychiatric hospitals. For rehabilitation facilities, total margin dropped from 8.31% in FY01 to 1.78% in FY02. Two primary factors contributed to this sharp decline. First, several non-profit rehabilitation hospitals sustained large losses in investment income and in the value of their marketable securities. Second, an increase in federal taxes paid by the HEALTHSOUTH Corporation during FY02 sharply increased the tax expense allocated to its Pennsylvania hospitals. The average total margin for psychiatric hospitals also dropped, going from 1.62% in FY01 to a minus 1.31% in FY02. The cause for this decline was largely due to accounting adjustments at three non-profit hospitals and an increase in the federal tax expense at three for-profit hospitals. Excluding these adjustments, the statewide total margin for psychiatric hospitals would have dropped less than one point and the operating margin would have increased a half point.

Long-term acute care facilities (LTAC), a relatively new sector in PA, continued to grow in FY02, increasing from five facilities in FY97 to 16 facilities in FY02. The statewide average occupancy rate for LTAC beds (med-surg only) rose nearly 5 points to 67.6% in FY02 because the demand for long-term acute care (patient days) increased by 22%. Medicare is the largest payor of long-term acute care followed by commercial insurers and the state's Medical Assistance Program.

The Pennsylvania Health Care Cost Containment Council (PHC4) 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 2002, Volume Two are free and are available on the Council’s website at http://www.phc4.org or by calling PHC4 at (717) 232-6787.