PA Hospital Highlights

Highlights of 1996 Financial Data


Inpatient Activity Decreases

The number of hospitals continues to decline. Two hundred-sixty-eight hospitals reported financial information in 1996, down from 290 hospitals in 1991.

The number of discharges from general acute care hospitals declined 2.5% from 1995 to 1996, the sharpest decline since the Health Care Cost Containment Council began reporting hospital financial data.
The number of patient days continues to decline -- 5.9% for all hospitals.
The percentage of revenue from outpatient services continues to increase.
Ambulatory Surgery Centers -- included for the first time in this report -- reported an 8.2 % increase in the number of surgical visits over 1995.

Expenses Increase

Total Operating Expenses for general acute care (GAC) hospitals increased 2.2% from 1995.

After several years of declining rates of increase this marks a turnaround.

In 1996, the general acute care hospitals reported $16.0 billion in total expenses, compared to $15.6 billion in 1995.

Cost per Discharge (Adjusted) Decreases

The cost per discharge decreased from 1995 to 1996.

For large general acute care hospitals the cost per discharge decreased 2.6%.
For small general acute care hospitals the cost per discharge decreased 0.6%.

Revenues Increase

Net Patient Revenue increased only 0.8% from 1995.

For general acute care hospitals patient revenue increased 1.1%.
This is a slow down in the rate of growth over 1995 and is slower than the growth rate in total expenses.
The gap between patient revenue and operating expenses (indicated by the core margin) widened to -2.1%.

Total Revenue for all Pennsylvania hospitals -- which includes Net Patient Revenue plus other non-patient revenue -- increased 1.9% in 1996 to $18.6 billion.

Larger acute care hospitals increased their revenue.
Smaller acute care hospitals saw a decline in revenue.
All other hospitals reported an increase in total revenue of 1.06% to $1.9 billion.

Profit Margins Increase

Median Net Margins increased for GAC hospitals from 1995 to 1996.

Large GAC facilities went from 3.6% to 3.8%.
Small GAC facilities went from 1.0% to 1.1%.
Total revenue for all non-state hospitals from all sources exceeded expenses by $739 million a 5.1% decrease from 1995.

Balance Sheet Improves slightly

Liquidity for all Pennsylvania hospitals, as measured by the current ratios, decreased slightly from 1995.

For larger GAC hospitals liquidity actually decreased 7% to 1.58.
The median current ratio for small GAC hospitals increased from 1.46 to 1.61.

Debt to equity ratios, which measure the relative indebtedness of a hospital, remained relatively constant overall for all hospitals.

For larger GAC hospitals it improved from 0.63 to 0.59.
While for smaller GAC hospitals, it increased from 0.31 to 0.35.

Medicare & Medicaid Utilization declines slightly

The percentage of patient days used by recipients of the federal Medicare program and the state Medicaid program decreased in 1996.

Medicare:

The percentage of patient days used by recipients of the federal Medicare program reached 52.9% in 1994 and dropped to 46.8% in 1995 and 45.5% in 1996.
For large GAC hospitals, Medicare utilization is highest in Region 3 (62.5% in 1996). It is the lowest in Region 9 (43.8% in 1996).

Medicaid:

The percentage of total patient days used by recipients of the state Medicaid program declined in 1996.
The rate declined to 15.4%. in 1996 from 15.7 % the previous year.
Among large GAC hospitals, Medicaid utilization is highest in Region 9 (23.2% in 1996). It is lowest in Region 8 (7.9% in 1996).

Charity Care & Uncompensated Care Increase

Hospitals operate under competing financial pressures. As non-profit institutions, they are expected to provide care to anyone who asks for it. As large and complex operations, they must meet operating expenses and also generate sufficient surplus to respond to the growing demand for services as well as new technology.

General Acute Care hospitals provided $ 637 million in uncompensated care -- a 4.7 % increase.
For 1996 uncompensated care at general acute care hospitals represents 4.0% of the total expenses of a hospital -- up slightly from 1995.
Charity care, the cost of care rendered without charge, represented 1.2% of the total expenses of general acute care hospitals.
For all Pennsylvania hospitals uncompensated care represents 3.9% of expenses.
Smaller acute care hospitals paid a slightly larger portion of their expenses for uncompensated care (4.2% compared to 4.0% for larger acute care hospitals).
The ten largest providers of free care account for 38% of all hospital charity care in Pennsylvania.
Of the 268 hospitals, 197 reported charity care in their audited financial statements. Seventy-one hospitals reported no charity care.

Charity care is only part of a hospital’s commitment to its community. Many hospitals provide a number of community service programs which include services to the needy, health education, wellness programs, counseling, screenings, and professional training programs. Very few hospitals include those costs in their financial statements.

The Health Care Market Place Is Changing

The health care market place in Pennsylvania and in the United States is changing very quickly. Much of this change is led by the rapid growth of managed care and the shifting of services from inpatient to outpatient care. Employers and governments see managed care plans as effective ways to manage health care costs through more efficient utilization of health care services. Ambulatory surgery centers are perceived by many as a more cost effective way of delivering some surgical services.

HMOs Increase Market Share

At the end of 1995, almost one-fourth of the Pennsylvania population was enrolled in Health Maintenance Organizations.
Preliminary analysis of data submitted by HMOs to the Departments of Health and Insurance indicate that this number is close to 30% for 1996.
In 1995, HMOs paid over $1.1 billion for inpatient services.

Ambulatory Surgery Centers (ASC) Increase Volume and Revenue

Ambulatory Surgery Centers reported a 6 % increase in revenue and an 8.2% increase in the number of surgical visits, (based on facilities that reported in both years). This is a much larger growth in revenue and patient volume than that experienced by hospitals.

Payors and Payments

In order to track the impact that these changes in the delivery system had on hospitals the Council surveyed Pennsylvania hospitals to ask who paid for services and how they were paid. The survey responses indicate that:

16% of patient revenue is paid by HMOs, but hospitals earn less than 0.7% from capitated payments (fixed payments to treat a group of patients).
15% of hospital revenue is based on billed charges.

Utilization is Changing

The graphs and tables on pages 20-27 of this report show a declining utilization of hospital services since the Council began reporting financial data in 1990. The total number of admissions, the number of total patient days, and the occupancy rate have declined each year since 1992 for Pennsylvania hospitals.

This pattern is similar to the patterns experienced in other states as managed care markets grow and mature. The map below indicates that in Pennsylvania there is wide variation in the number of patient days per population among Pennsylvania counties. It displays the average number of patient days per thousand in each county’s population. A rate of 1000 per thousand would mean that on average, every person in that county spends one day in a hospital somewhere in Pennsylvania. This map does not include Pennsylvania residents who sought care in neighboring states or in federal hospitals, and it is not adjusted for differences in age and sex differences. It does illustrates a wide variation in the rate of hospital use within Pennsylvania that should raise questions about the appropriate rate of utilization.

One strategy that hospitals have developed to respond to a declining market is consolidation. During the last few years numerous hospitals have formed mergers and alliances. Later this summer, the Council plans to release a report on hospital systems in Pennsylvania.