Most area hospitals operated in the black, meeting growing challenges as patients lose insurance or struggle to meet out-of-pocket expenses required of high-deductible policies, leaders say.
A new state report shows financial margins slipped last year, but so did the amount of charitable care and bad-debt service provided.
Pennsylvania hospitals’ total operating income slipped from $2.4 billion to $2.3 billion during fiscal year 2018, Pennsylvania Health Care Cost Containment Council’s annual Financial Analysis report says.
“The statewide percent of uncompensated care to net patient revenue has been steadily decreasing for the past five years,” PHC4 Executive Director Joe Martin said in a press release with the report, which was released Tuesday.
Conemaugh Meyersdale, Miners and Nason medical centers and Chan Soon-Shiong Medical Center in Windber were among 39 percent of Pennsylvania hospitals reporting negative operating margins, but leaders say the numbers don’t represent the full picture.
“When we look at Conemaugh Health System as a whole, including all four hospitals and Conemaugh Physician Group,” said David Paulosky, Conemaugh’s market chief financial officer, “the consolidated operating margin is about the same as the (2.88 percent) Region 3 average.”
Conemaugh Memorial Medical Center’s 6 percent operating margin on $364 million in net patient revenues helped offset Meyersdale’s 4 percent loss on $14 million, Miners’ 17 percent loss on $15 million, and Nason’s 3 percent loss on $34 million in revenue Paulosky said.
The black ink on Conemaugh’s bottom line makes it stand out among the state’s for-profit hospitals. The council shows the average operating margin was negative 9 percent among the 29 for-profit hospitals in the report. Miners was the only Conemaugh hospital below the average.
At Windber, a pension buyout and overall contributions helped turn a negative 5 percent operating margin into a total margin in the black at 5 percent, Chief Financial Officer Richard Sukenik said. Contributions include support from the hospital’s benefactor, Dr. Patrick Soon-Shiong.
“We feel pretty good and we are in line with state trends,” Sukenik said. “Inpatient revenue is going down, and outpatient revenue is going up. The margins are lower on outpatient, but that’s the trend.”
The report covers the fiscal year that ended June 30, 2018 – the day after the former Somerset Hospital announced it entered merger talks with UPMC Health System of Pittsburgh.
Somerset’s 8 percent total margin on $65 million revenue illustrates the financial strength of the former Somerset Hospital, said Andrew Rush, chief executive officer for UPMC Somerset.
Rush said the strong performance contributed to the UPMC Health System’s interest in Somerset.
“I think we were in a good position when we were looking for a partner,” he said. “We were not desperate.”
Somerset leaders were committed to providing health care in the community, but saw changes in health care were making that mission more difficult for independent hospitals, he said.
“I think that financial strength made Somerset attractive to UPMC,” Rush said. “They thought they could grow and enhance our services. I think it was a good match.”
Indiana Regional Medical Center’s slim 1 percent margin illustrates some issues in health care, Chief Financial Officer Robert Gongaware said.
“It’s been a challenging year,” Gongaware said. “We were (financially) positive, but we are not seeing and increases from Medicare or Medicaid. We are relying on increases from commercial (insurance) providers.”
Focus on the service lines of cardiology, orthopedics and oncology should help build revenue, he said.
“Our board is committed to remaining an independent community hospital,” he said.
Leaders are trying to reduce expenses, Gongaware added, pointing to an ongoing impasse with the hospital nurses’ union.
A financial review showed wages and benefits had reached more than 60 percent of the net revenue figure. The hospital’s fiscal structure is designed with a maximum 56 percent ratio, he said.
Indiana is not the region’s only hospital challenged by low reimbursement from Medicare and Medicaid, which is also known as Medical Assistance.
At Conemaugh Memorial, Medicaid accounted for nearly 16 percent the $346 million from patient revenue – the highest percentage in the region.
Windber and Somerset had 13 percent from Medicaid, the state report says.
“It speaks to our demographics,” Rush said from Somerset. “We know it’s a challenge.”
The ratio may be increasing because the state made changes to enroll in health care plans, but Sukenik said it may boost uncompensated care, which includes both charitable care and bills that can’t be collected.
“Part of what you are going to see is when patients get into these high-deductible plans, collection falls on the patients,” Sukenik said.
The report falls short of showing the hospital’s economic benefit to the community, Paulosky said from Conemaugh Memorial.
“Each of our hospitals has an important role in our health system, and in each community they serve,” Paulosky said.
“We are especially proud of the investments we’ve been able to make in the community over the last three years with the support of Duke LifePoint Healthcare, including the construction of new facilities in Richland, Ebensburg and Somerset, as well as investing in our main campus at Memorial.”
Paulosky provided Conemaugh reports showing each hospital’s impact. In addition to its $13 million uncompensated care and $229 million in payroll, Memorial pumped about $20 million into the community. The total includes real estate taxes, sales tax, financial contributions, community health, research and training.
“We value reports like the PHC4 Financial Analysis to assist us in looking broadly at the state and region, but we benchmark our financial performance on internal targets and goals,” Paulosky said. “We’re comfortable with our overall performance in a dynamic industry and market.”