Hospitals in the pink
Area hospitals have all achieved profitability with Holy Spirit back in the black, but Carlisle Regional Medical Center’s profit dropped
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This is the new CRMC wound care center on Alexander Spring Road and Commerce Drive. Karissa Zimmer/Sentinel file photo
Holy Spirit Hospital is back in the black, and Carlisle Regional Medical Center no longer has the highest profit margin among similar hospitals in the state.
A report on the 2007 fiscal year released today by Pennsylvania Health Care Cost Containment Council – PHC4 – contained good news about hospitals across the state in general and the two area hospitals in particular.
Carlisle, which topped PHC4’s list with a 22.69 profit margin in last year’s list, moved closer to the middle of the list of 170 hospitals with an operating profit margin of 11.5 percent.
And Holy Spirit, which for the previous two years posted operating losses of 4.64 and 1.96 percent respectively, reported operating profits of 0.78 percent and total profits of 2.72 percent.
Operating margins reflect the percentage of operating revenue remaining after all operating expenses are paid, while total margins include both operating revenue and “non-operating income” from sources such as investment gains, trust income and contributions.
It took non-patient revenue for the historically profitable Holy Spirit Hospital in East Pennsboro Township to turn a profit in 2007, but hospital officials are not complaining.
The hospital reported $202 million in “net patient revenue” and $208 million in “total operating expenses” in 2007, but $7 million in “non-direct patient services revenue” – from sources such as rental income and the hospital cafeteria – turned the gap black.
Manny Evans, senior vice president and chief financial officer for the hospital, said the hospital returned to profitability due to several internal financial controls put in place.
“We’re managing all aspects of the cost structure,” Evans explained.
Meanwhile, Evans said, Holy Spirit continues to expand and offer new services. For example, in November the hospital opened a Sleep Center in Lemoyne, which is staffed with technicians who diagnose sleep disorders.
Holy Spirit’s financial problems began with the construction of The Ortenzio Heart Center, which opened in October 2003, requiring the hospital to hire more than 200 new employees to staff the center and related services. Hospital expenses shot up from $153 million in fiscal 2003 to $208 million in fiscal 2005.
Expenses remained at $208 million in 2007, Evans noted, proof that the hospital’s financial picture has stabilized.
“As good corporate citizens in a community, hospitals play a very significant role,” he said. “Without generating an adequate return on operations… a valuable asset to the community can find itself on a downward spiral and unable to come out of that.”
Tony Smith, chief financial officer for Carlisle Regional, noted that hospital officers predicted last year that profit margins for 2007 would be smaller.
“Most of that decline is due to the fact that the costs of the new facility are being reflected now,” Smith said, referencing the $73 million Carlisle invested in the new hospital on Sprint Drive that opened in 2006.
Results reported last year did not yet fully incorporate the costs of that construction, Smith said, and he expects that operating profits in the next few years will continue to be in the 11.5 percent range, or a bit lower.
“There were some other hospitals that were higher for our region (in 2007),” Smith said. But, he added, considering the new hospital, “We were pleased with the results.”
Smith also noted that over the past two or three years, the hospital has tried to “hold down the increase in cost” to help area residents.
Here’s a summary of how other regional hospitals, all non-profits, fared in the PHC4 report:
• Chambersburg Hospital posted a 6.73 percent operating margin; net patient revenue totalled $203 million; and operating expenses were $193 million;
• Penn State Milton S. Hershey Medical Center posted a 7.01 percent operating margin; net patient revenue totalled $618 million; and operating expenses were $604 million;
• Pinnacle Health posted a 4.46 percent operating margin; net patient revenue was $487 million; and operating expenses were $477 million.
“The financial health of Pennsylvania hospitals continues to improve,” said David H. Wilderman, acting executive director for PHC4. According to the report, the statewide average operating margin rose from almost 4 percent in 2006 to 4.8 percent in 2007, and the average total margin grew for the fifth consecutive year, totaling 6.51 percent.
However, Wilderman said, 25 percent of the hospitals -- mainly the small- to medium-sized ones that serve rural communities -- lost money overall. That figure has not changed much in the past year, according to PHC4, but it is troubling because such hospitals are a vital resource for rural communities.
PHC4 also pointed out that the amount of uncompensated care hospitals across the state provided was up 12 percent from last year, from $604 million to $678 million and to 2.27 percent of all net patient revenue.
The report also noted that Medicare’s portion of net patient revenue continues to decline slightly, going from 37.5 percent to 37.1 percent, while the portion from commercial insurers increased from 43.2 percent to 44.2 percent.
The commercial insurance numbers also saw an 11.2 percent increase in average reimbursement per outpatient visit, the PHC4 said.
