Profit halved at hospitals in Maryland 15 of 52 hospitals lost money in last half of '97, up from 5 in '96

State panel to meet on rates

Earnings blamed on Medicaid switch to HMOs, uninsured

Health care

March 29, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

With state regulators and HMOs squeezing harder, Maryland hospitals saw their profits cut in half during the last half of 1997.

Of the state's 52 acute-care hospitals, 15 showed net losses for the six months. For the same period in 1996, only five posted losses.

The tumble in financial performance follows three years of record profits and comes as regulators struggle to find a balance between controlling costs and keeping hospitals viable.

On the one hand, some say the commission needs to act aggressively on rates, since Maryland's cost per hospital case has been increasing faster than the rest of the nation, where rates are unregulated and HMOs are driving down hospital charges.

"If the commission doesn't do better than the open market, we don't need a regulatory system, and can leave [rates] to competitive forces," said Thomas P. Barbera, executive vice president of MidAtlantic Medical Services and president of the state's HMO association.

On the other hand, "As you drive down profits, you have the potential to strip away enough cash that you can't keep the facilities modern," said William J. Ward Jr., of the health policy and management department in the Johns Hopkins School of Public Health.

The current operating profit margins of 2 percent are close to those hospitals showed for more than a decade. Only in the past three years did profit margins increase.

"The 2-percent or 3-percent range would not be an emergency if we didn't think it was going to continue to go south," said Ronald R. Peterson, president of the Johns Hopkins Health System. "But I see it getting worse. The commission is talking about very limited price authority, and I see inflation creeping up" in the hospital field.

Running counter to the trend, Hopkins' profitability remained steady in 1997.

The Health Services Cost Review Commission is scheduled to decide Wednesday how to tweak its inflation-adjustment formula for next year.

Already, hospitals have said their rate increase should be higher than the 1.7 percent the commission is considering, while the HMOs who pay for hospital care have said the rate should be pushed down further.

Last year, after a report showed the cost of a hospital stay in Maryland rising at twice the national rate, the commission triggered a "correction factor" to hold charges down.

Hospital profits are less as a result, according to two measures used commonly in Maryland. Based on reports to the commission by the hospitals, compiled by the Maryland Hospital Association: Operating profit margin, from regulated hospital operations, was 2.0 percent for the six months that ended Dec. 31, compared with 4.2 percent for the corresponding period in 1996.

Net profit margin, including income from nonhospital operations (such as investments), was 3.5 percent for the six months, down from 5.7 percent for the last six months of 1996.

The rapid change in finances hit some groups of hospitals harder than others. Of the 15 hospitals with losses for the six months, 14 were in Baltimore or in rural areas.

According to the hospital association, the operating margin was 1.5 percent for rural hospitals and 0.7 percent for hospitals in the city. Hospitals with fewer than 150 beds, as a group, lost 1.6 percent.

All hospitals in the state had to cope with the commission's action last year to tighten inflation adjustments. On average, they have gotten rate increases this year in the range of 1.0 percent to 1.5 percent.

For example, Sinai Hospital got an inflation adjustment of 1.3 percent, compared with increases of about 4 percent a year for the last several years, said Chuck Orlando, vice president for finance of the Sinai Health System.

Sinai reported a loss of $990,000 for the six months that ended Dec. 31, compared with a profit of $1.3 million for the same period a year earlier.

It was one of 10 Maryland hospitals in the red for the period that was profitable a year earlier. Besides Sinai, the other unprofitable Baltimore hospitals were: Bon Secours, Church, Harbor, Maryland General, Union Memorial and University of Maryland. The unprofitable rural hospitals were: Garrett County Memorial in Oakland, Sacred Heart in Cumberland and Washington Adventist in Takoma Park.

All hospitals are also coping with fewer but sicker patients and shorter hospital stays. Price-conscious insurers have been moving more care to an outpatient basis, and pressuring hospitals to discharge patients more quickly.

For the last three months of 1997, the number of hospital admissions was down 3.4 percent, and the average length of stay -- 4.7 days -- was down 4.3 percent, compared with the same period a year earlier, according to the hospital association.

And many hospitals reported that it's getting harder to get paid. There seems to be an increase in uninsured patients. Medicaid has switched welfare mothers and their children into HMO-like plans, and early enrollment confusion has presented billing problems for care providers.

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