Financial Analysis 2004 News Release

FOR IMMEDIATE RELEASE

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

TOTAL FINANCIAL MARGIN FOR PA HOSPITALS IMPROVES - OPERATING MARGIN DOWN SLIGHTLY

Harrisburg, PA - February 24, 2005 - The statewide financial total margin realized by Pennsylvania’s general acute care (GAC) hospitals grew by more than a full point in Fiscal Year 2004 (FY04), rising from 2.3% in FY03 to 3.37% in FY04, according to new figures released today by the Pennsylvania Health Care Cost Containment Council (PHC4).

“With the rebound of the securities markets, many hospitals realized increases in the value of their investments,” stated Marc P. Volavka, Executive Director of PHC4. “Non-operating income from investments and charitable contributions rose sharply, from $33 million in FY03 to $330 million in FY04, helping to drive the statewide total margin to its highest level since FY97.”

Non-operating income comprises about 38% of the total income realized by hospitals in FY04. Since one hundred sixty-two (162) of the 182 GAC hospitals in Pennsylvania operate as non-profit corporations, Pennsylvania’s GAC hospital industry relies heavily on non-operating income such as investment income and contributions to sustain its operations.

In contrast to the growth in non-operating income, hospitals reported only about a $24 million gain in operating income to $528 million. Since operating expenses grew a little faster than operating revenue during FY04, the statewide operating margin actually fell from 2.16% in FY03 to 2.10% in FY04. However, the statewide operating income and operating margin in FY04 were appreciably affected by “merger, impairment and other usual charges” posted by a single hospital system.

Twenty-seven (27) fewer GAC hospitals reported losses during FY04 than in FY03. While nearly one-half (48%), or 88 hospitals posted a loss in FY03, this number fell to 61 or about one-third (34%) of hospitals by the end of FY04.

“The percent of hospitals that have sustained average losses over the last three years remained steady at 37%, while there was an increase in the number of hospitals that had a three-year average total margin in the 4% to 6% range,” noted Mr. Volavka.

On a statewide basis, Pennsylvania GAC hospitals provided a total of $512 million in uncompensated care in FY04, up 7.1% from $478 million in FY03. Uncompensated care as a percent of net patient revenue dropped slightly, however, from 2.17% in FY03 to 2.15% in FY04.

The Pennsylvania Health Care Cost Containment Council (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.