Maryland hospitals post lowest profit in decade

Group says rising costs, limits on bills left a quarter in red

`No margin, no mission'

Health care

March 28, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

Maryland's hospitals posted the lowest profit margins in a decade last year, according to figures released yesterday by the Maryland Hospital Association.

As a group, the hospitals posted a 0.6 percent margin on operations, and a 2.2 percent total margin, including nonhospital items such as investment income. That compares with a 3.1 percent operating margin and 3.9 percent total margin in 1998.

Overall, about a quarter of hospitals ended the year in the red, according to the association.

Although all of Maryland's hospitals are not-for-profit, "without any kind of margin, there's no ability to invest in new equipment and new services, and to support community outreach activities," said Nancy Fiedler, senior vice president of the hospital association.

"No margin, no mission," she summarized, repeating an aphorism common among hospital administrators.

Over the past year, Fiedler said, hospitals have adopted a number of belt-tightening measures, including reducing staff -- some by layoff, some by attrition -- and consolidating clinics. However, she said, almost all staff reductions have come in areas that do not involve direct patient care, so clinical quality has not been diminished.

Among cost-cutting measures, Fiedler said, were closing of a dental clinic and family clinic by Prince George's Hospital Center, consolidation of urgent-care centers by Western Maryland Health System, elimination of two mental health programs at Sinai Hospital and closing of the psychiatric inpatient unit at Holy Cross Hospital.

Warren Green, president and chief executive officer of LifeBridge Health, which operates Sinai and Northwest Hospital Center, said Maryland hospitals have been caught between "countervailing forces."

On one hand, factors such as new technology and increasing numbers of uninsured are driving up costs, Green said, while state regulators adopted "an inflation-minus mentality" that kept rates below the level needed to meet costs.

Thomas R. Mullen, president and chief executive officer of Mercy Medical Center, said that with inflation between 3 percent and 4 percent, hospitals have found "you have to improve productivity just to stay even." On top of that, he said, his hospital has had to boost pay to hire and retain nurses, technicians and dietary workers.

The Health Services Cost Review Commission, which sets hospital rates in the state, cut per-case charges at most Maryland hospitals by 1 percent, effective last April -- a major factor in bringing profit margins down.

However, in July the commission will allow a 2.5 percent average increase, close to the estimated rate of medical inflation.

The latest operating margin figure is "a disturbing number -- not something we want to see," said Don S. Hillier, chairman of the rate-setting commission.

However, he said, the July rate increase should improve margins at Maryland hospitals. "We want to see the hospitals be fiscally healthy as long at they're managing themselves efficiently," he said.

In some cases, Hillier said, hospital margins had been eroded by poor business decisions on related enterprises, such as buying physician practices. Green agreed that with the new rate formula, "I would expect things would pick up a little, but I don't think we're going back to the headier days of three or four years ago."

Then, hospital margins in Maryland were at record highs. But the regulators became concerned because Maryland's per-case costs were rising faster than the national average, leading to the measures that restrained the charges hospitals could levy.

Nationally, Fiedler said, hospital margins also appear to be declining, but higher than margins in Maryland, although comparable national figures are not yet available for 1999.

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