Volume One News Release | Financial Analysis 2003

News Release - General Acute Care Facilities Volume One

FOR IMMEDIATE RELEASE

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

MANY PA HOSPITALS STRUGGLE DESPITE HIGHER INSURANCE REIMBURSEMENTS

Harrisburg, PA - April 29, 2004 - Despite increases in revenue and charges, nearly half of Pennsylvania’s general acute care (GAC) hospitals lost money last year. Payments (revenue) for hospital care grew about three times faster than the general rate of inflation during the 2003 fiscal year, according to a report released today by Pennsylvania Health Care Cost Containment Council (PHC4). At the same time, hospital charges - up 22% in Fiscal Year 2003 (FY03) - grew twice as fast as hospital expenses and net patient revenue (NPR). Generally, the amount received by a hospital in payment or revenue is less than what was charged or billed. Driving the 9% increase in hospital NPR was increased payments from managed care plans - on average, payments per discharge grew three times faster in managed care plans than in indemnity plans.

“The sharp increase in managed care reimbursements was consistent across commercial insurers, Medical Assistance and Medicare,” noted Marc P. Volavka, Executive Director of PHC4. “One factor driving these increases is the fact that hospital charges are now more than three times greater than net patient revenue.”

“Increases in revenue, however, were offset by increases in expenses,” Mr. Volavka added. Eighty-seven of the 182 GAC hospitals in Pennsylvania posted losses in FY03. Over the past 3-year period, 38% of hospitals sustained average losses. Consequently, half of Pennsylvania’s GAC hospitals may find it difficult to make improvements to their facilities and equipment.

The increase in payments to hospitals was driven primarily by commercial insurers. As a result of higher reimbursement rates and an increase in the number of days and discharges, total patient revenue from commercial insurers increased by 14.4% during FY03. Payments to hospitals from Medical Assistance (MA) were up 13.2% over the previous year; this increase was driven by payments from the managed care plans under contract with the state's MA program. Total revenue from the Medicare program grew by only 4.3%.

OTHER HIGHLIGHTS

During FY03, the average reimbursement hospitals received for an inpatient discharge increased almost 6% while the inflation rate in Pennsylvania was generally below 2%. The Consumer Price Index (CPI) for medical services in the Northeast and across the nation increased by about 4% during the same period.
Only 40% of hospitals reported 3-year average total margins above 2%.
Medicare provided 41.6% of the patient revenue GAC hospitals received statewide.
The increase in the average revenue per discharge from Medicare was only 3.1%, compared to 10.5% for commercial payors and about 6.0% for all payors.
Average total margin varied by region. Of the nine regions in Pennsylvania, only three - South-Central, East-Central, and the city of Philadelphia - had margins that exceeded the statewide average. Of the remaining six regions below the statewide average, two had negative margins.
The average total margin for the Pittsburgh metropolitan region dropped from 4.27% in FY02 to 2.11% in FY03.
Seventeen of the state’s GAC hospitals were operating as for-profit hospitals during FY03.

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. Free copies of Financial Analysis 2003, Volume One are available on the Council’s website at http://www.phc4.org or by calling PHC4 at 717-232-6787.