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New PHC4 Report Shows Too Many PA Hospitals Struggle Financially

May 26, 2016

Today’s report from the Pennsylvania Health Care Cost Containment Council (PHC4) shows that the average total margin for the commonwealth’s hospitals decreased slightly during fiscal year 2015. Nearly 30 percent of Pennsylvania's hospitals lost money on operations. About one in four lost money overall.

PHC4’s report provides information about the finances of Pennsylvania’s general acute care hospitals during 2015. On average, hospitals realized:

  • A slight (0.01 percentage point) decrease in total margin, from 5.66 percent to 5.65 percent
  • A 1.21 percentage point increase in operating margin, from 4.25 percent to 5.46 percent

Many hospitals fell short of the 4 percent total margin threshold that experts say is required to maintain financial sustainability over the long-term.The report shows that more than half (54%) of hospitals had three-year average total margins below this 4 percent threshold.

The report also provides indications that hospitals are continuing to transform health care by:

  • Investing in new care models to keep people healthy and out of the hospital
  • Meeting the health needs of Pennsylvanians newly insured through the federal Health Insurance Marketplace and expanded Medicaid

Over the last seven years, hospital visits have steadily declined, reaching a low of 1.58 million in 2015. A growing portion of hospital care (45.6% of net patient revenue) is provided in outpatient and community settings.

Pennsylvania hospitals continue to provide significant amounts of uncompensated care (care that hospitals provided but were never paid for—a combination of charity care and uncollectible patient debt). But 2015 was the first time in a decade that uncompensated care decreased (by about 9%) from nearly $1.1 billion during 2014 to nearly $1 billion during 2015.

This reduction represents welcome news for hospitals—especially if the drop results from more patients having coverage, due in part to payment reductions hospitals agreed to in order to help fund coverage expansion.

About 920,000 Pennsylvanians have obtained health coverage through the marketplace and Medicaid expansion. At the same time, Medicare payments for Pennsylvania hospitals were cut by $2.8 billion from 2010 through 2015. Some of these reductions were agreed to in order to fund coverage expansion.

The hospital community is also concerned about the growth in high-deductible health plans, their impact on patients’ ability to afford their health care, and potential increases in hospitals’ uncollectible patient debt and uncompensated care.

Patients with these plans may be at risk for paying for more of their health care out of their own pockets. Some patients may struggle to meet their financial obligations—driving up hospitals’ uncollectible debt and uncompensated care.

Despite financial challenges, hospitals continue to be economic engines that help drive Pennsylvania’s economy and support communities.

  • Hospitals support about one in ten of the state’s jobs—more than 625,000 jobs in the commonwealth.
  • Hospitals contribute nearly $115 billion to the state’s economy, a $4 billion increase from 2014.

The Hospital & Healthsystem Association of Pennsylvania (HAP) will continue to monitor and report on Pennsylvania hospital finances, jobs, spending, and economic stimulus. 

For more information, please contact Martin Ciccocioppo, HAP’s vice president, research.

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