May 3, 2004 By The 7 min read

Facing a combination of lower insurance reimbursements and costs that continue to rise, officials at some local hospitals are finding it more difficult to keep their operations in the black, according to a report by a statewide group. General acute care (GAC) hospitals in Pennsylvania, including some in Fayette, Greene and Washington counties, have been struggling financially, according to the Pennsylvania Health Care Cost Containment Council’s (PHC4) 2003 financial analysis, which diagnoses the financial health of the state’s hospitals.

The report, released Thursday, outlines, among other things, each hospital’s operating margin, which reflects the percent of operating revenue remaining after all operating expenses are paid. A positive operating margin indicates that a hospital is receiving more revenue for its operations than it costs to run them. Those operations include functions related directly to patient care and others, such as medical education, cafeterias, office space and parking.

Perhaps more importantly, the report shows each hospital’s total margin, which includes both operating income and non-operating income from all other sources, including investments and contributions, and reveals the composite financial health of a hospital over a given time period. If the total margin is negative, the hospital is losing money after all sources of revenue and income have been considered.

The PHC4 analysis also identifies hospitals that have reported negative average total margins over the past three years (2001 to 2003).

It has been six years since Brownsville General Hospital has been in the black, but Chief Executive Officer Mike Evans said he anticipates seeing a financial turnaround by the end of this year, as the hospital focuses more on outpatient services and the expansion of mental health services.

“I’m hopeful we can have our expanded mental health unit ready in September, and it’s going to take some time to establish the cash flow. Probably by the end of this calendar year we’ll be moving in a more positive direction,” he said.

Evans said trends in insurance reimbursement are leading BGH to expand its mental health services, but it is only one aspect of the overall service the hospital wants to provide to the community.

As a way to bring Brownsville General some financial stability, Evans said, the hospital will focus on outpatient services such as lab testing, X-rays, wound care, diagnostic services, cardiology, prostate cancer treatment and mobile hyperbaric therapy for diabetics.

“There are other needs that we want to meet, primarily in outpatient services and services for diabetes patients,” he said.

Like Brownsville General, two other local hospitals – Frick in Mount Pleasant and Highlands in Connellsville- reported negative three-year average total margins.

Westmoreland Regional Hospital and Frick Hospital’s Chief Financial Officer Jeffrey Curry was unavailable for comment, but the PHC4 report indicates that Frick “engaged an independent consultant” to help formulate a financial plan and that officials expect a new outpatient clinic to help boost revenue

Highlands Hospital Chief Financial Officer John Andursky said although a recent preliminary report from the PHC4 showed a 9.2-point decline in last year’s total margin, the hospital has taken steps to improve its situation.

Andursky said the hospital has experienced staffing shortages, increased wage costs, less in Medicare and Medicaid reimbursements, and benefit packages that are somewhat higher. All of these factors drove Highlands’ total margin in 2003, as well as its three-year average total margin, into negative territory.

“The report actually indicates that 2003 was our first year of negative margin in the last three years,” he said. “We were profitable over the prior two years.

“There are several things that are causing this to happen,” he continued. “A lack of appropriate reimbursements have caused it to happen in addition to the fact that our costs are increasing at rates more rapidly than what our reimbursement is.”

He said the hospital is looking to turn the negative trend around by examining all the services it provides and increasing services in other areas.

“We just kicked off the Century Club, and that has been pretty well received by the community,” said Andursky. “We hope to see that increase, because it is non-operating revenue.”

However, the hospital doesn’t put a lot of emphasis on contributions, according to Andursky.

“Our focus is on operating results,” he said. “We want that number to return to a positive margin.”

While Uniontown Hospital and Greene County Memorial Hospital also saw their total margins fall into the red last year, both saw profitable years in 2001 and 2002 that kept their three-year averages in the black.

For example, for every dollar Uniontown Hospital earned in 2003, they lost approximately 4 cents, a negative of 4.16 percent. But with non-operating revenue, the hospital made up approximately 3 percent to “help offset that loss,” explained Paul Bacharach, the hospital’s chief executive officer. That 3 percent increase brought the negative percentage to 1.74, bumping the three-year average total margin into a positive 2.44 percent.

Hospital officials say the leading cause of the financial problems their institutions are facing is insufficient reimbursement from government-subsidized medical insurance programs such as the federal Medicare plan for seniors and the state’s Medicaid medical assistance program.

Bacharach said medical assistance is not helping to loosen the financial strap squeezing some hospitals.

“This area is highly dependent on Medicare and Medicaid,” he said. “Payments in those programs do not keep pace with the need for care.”

And high poverty levels, obviously, lead to more people relying on medical assistance.

Raoul Walsh, chief executive officer at Greene County Memorial Hospital, said 15 to 20 percent of the county’s population lives below poverty level.

“People without insurance come to the hospital, and that revenue becomes a bad debt,” Walsh said. “Everybody is in this boat. You have to write your bad debt off, eventually.”

Greene County Memorial Hospital eked out a positive .99 percent three-year average total margin after a negative total margin of 2.39 percent in 2003.

Also contributing to the hospitals’ financial woes are rising costs. Nearly every local hospital in the report showed a rise in total operating expenses over the past three years, ranging from $1 million to as much as $5 million in a single year.

Walsh said keeping up with the amount of money spent on malpractice, pharmaceuticals, blood products, health insurance, salaries and technology increased those expenses.

The only local hospital that saw a positive total margin in 2003 and a positive three-year average total margin was Monongahela Valley Hospital, according to the report. Both of those numbers stood at 2.48 percent, the report states.

Louis J. Panza Jr., senior vice president and treasurer for Monongahela Valley Hospital, said the hospital fared well in the PHC4 report because of “continued responsible fiscal management.”

However, Panza also said that in order to keep its numbers in the black, the hospital is remaining cautious because of the problems associated with reimbursements for Medicare and Medicaid.

Medicare reimbursements claimed 62.13 percent of the hospital’s net patient revenue for 2003, and Medicaid came in at 8.21 percent, he noted.

“Those figures emphasize how much we rely on reimbursements from the federal and state governments,” Panza stated. “But, despite our efforts to operate financially in an efficient and responsible manner, reimbursements are not improving. And those shortfalls continue to have a severe impact on hospitals and health systems across Pennsylvania.”

Editor’s note: Herald-Standard staff writers Amanda Clegg, Jackie Beranek and Christine Haines contributed to this report.

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On the Web: Pennsylvania Health Care Cost Containment Council: www.phc4.org