AHA: TrendWatch Chartbook 2003: Ch' 4

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Chapter 4Trends in Hospital Financing
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Chapter 4Trends in Hospital Financing
According to the AHA Annual Survey, approximately
29 percent of hospitals had negative total
margins in 2001, up from 19 percent in 1996.
Overall, total hospital margins fell to 4.2
percent in 2001, down from 4.6 percent in 1999
and 2000. (Chart 4.1 4.2). Hospital
outpatient revenue remained at 35 percent of
total hospital revenue in 2001, up from 13
percent in 1980. Hospital operating revenue per
adjusted admission increased 5.4 percent between
2000 and 2001, and hospital expenses per adjusted
admission also continued to climb 4.7 percent
between 2000 and 2001. Since 1980, hospital
dependence on Medicare has increased from 35
percent of total costs to almost 39 percent of
total costs in 2001. Over the same period,
Medicaid costs increased from 10 percent to
nearly 13 percent of total costs. At the same
time, private payers share of costs decreased
from 42 percent to 39 percent. Medicare
payments continued to fall relative to costs,
while Medicaid payments relative to costs rose
slightly. In 2001, Medicare paid about
one-and-a-half percent below the cost of
providing care, while Medicaid, in the aggregate,
paid about 4 percent less. Private payers
continued to pay more than the cost of providing
care, helping some hospitals to compensate for
losses from public payers and uncompensated care
(Chart 4.4 4.7). As the U.S. economy continued
to weaken, aggregate non-operating gains as a
percentage of total net revenue dropped a point
to 1.6 percent in 2001, but an increase in
aggregate operating margins provided a slight
offset to this decline. That same year, Standard
Poors downgraded more non-profit hospitals
than it upgraded by a factor of 4, much higher
than the previous three years. Reflecting upward
pressure on labor costs from the workforce
shortage, the percent change in the employment
cost index for hospitals in 2002 was 4.9 percent,
compared to 3.8 percent for all health services
and 2.7 percent for all private service
industries (Chart 4.8 4.11).
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Chart 4.1Percentage of Hospitals with Negative
Total Margins1980 - 2001
Source The Lewin Group Analysis of the American
Hospital Association Annual Survey data, 1980 -
2001, for community hospitals
Chart 4.2Aggregate Total Hospital Margins(1),
Operating Margins(2), and Patient Margins(3)1990
- 2001
8
6
Total Margin
4
2
Operating Margin
0
-2
Patient Margin
-4
-6
90
91
92
93
94
95
96
97
98
99
00
01
Source The Lewin Group Analysis of the American
Hospital Association Annual Survey data, 1990 -
2001, for community hospitals (1) Total Hospital
Margin is calculated as the difference between
total net revenue and total expenses divided by
total net revenue (2) Operating Margin is
calculated as the difference between operating
revenue and total expenses divided by operating
revenue (3) Patient Margin is calculated as the
difference between net patient revenue and total
expenses divided by net patient revenue
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Chart 4.3Hospital Margins Reported to
DATABANK(1) 2001 - 2002
Source DATABANK data. (1) Data represent the
experience of 800 hospitals that consistently
reported to DATABANK in 2001 and 2002. Data
are unweighted and over represent smaller
hospitals in western, rural states. A subset of
states are not represented in DATABANK. DATABANK
is an online database of hospital utilization and
financial performance indicators.
Chart 4.4 Distribution of Outpatient vs.
Inpatient Revenues 1980 - 2001
GrossInpatientRevenue
GrossOutpatientRevenue
Source The Lewin Group analysis of American
Hospital Association Annual Survey data, 1980
2001, for community hospitals
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Chart 4.5Annual Change in Hospital Operating
Revenue and Expenses per Adjusted
Admission(1)1981 - 2001
Source The Lewin Group Analysis of the American
Hospital Association Annual Survey data,1981 -
2001, for community hospitals (1) An aggregate
measure of workload reflecting the number of
inpatient admissions, plus an estimate of the
volume of outpatient services, expressed in units
equivalent to an inpatient admission in terms of
level of effort
Chart 4.6Distribution of Hospital Cost by Payer
Type1980, 2000, and 2001
Non-patient(1) - 2.7
Non-patient(1) 2.8
2.8
Uncompensated Care(2) -5.6
Uncompensated Care(2) - 5.1
6.0
38.7
Private Payer 38.6
Private Payer - 41.8
Other Government 1.5
1.4
Other Government - 6.1
Medicaid -12.8
12.8
Medicaid - 9.6
Medicare - 34.6
Medicare 38.6
38.3
Source The Lewin Group Analysis of the American
Hospital Association Annual Survey data, 1980,
2000, and 2001, for community hospitals (1) Non-pa
tient represents costs for cafeterias, parking
lots, gift shops and other non-patient care
operating services and are not attributed to any
one payer (2) Uncompensated care represents bad
debt expense, at cost, and charity care
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Chart 4.7Aggregate Hospital Payment-to-Cost
Ratiosfor Private Payers, Medicare and
Medicaid1980 - 2001
Private Payer
Medicare
Medicaid(1)
Source The Lewin Group analysis of American
Hospital Association Annual Survey data, 1980
2001, for community hospitals (1) Includes
Medicaid Disproportionate Share payments
Chart 4.8Income from Investments and Other
Non-operating Gains(1)as a Percentage of Total
Net Revenue1980 - 2001
Source The Lewin Group analysis of the American
Hospital Association Annual Survey data, 1980 -
2001, for community hospitals (1) Non-operating
gains include income from non-operating
activities, including investments, endowments
and extraordinary gains, as well as the value of
non-realized gains from investments
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Chart 4.9Number of Bond Rating Upgrades and
Downgradesof Non-profit Hospitals1992 - 2002
Upgrades
Downgrades
Source Standard Poors, 2003
Chart 4.10Median Average Age of Plant 1990 -
2001
Source CHIPS The 1994 Almanac of Hospital
Financial Operating Indicators and The 1996-7
Almanac of Hospital Financial Operating
Indicators and The 2001 Almanac of Hospital
Financial Operating Indicators. Ingenix The
2003 Almanac of Hospital and Operating Indicators
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Chart 4.11 Percent Change in Employment Cost
Index(1), All Private Service Industries, All
Health Services, and Hospitals, 12 Months Ending
December 2002
Source Bureau of Labor Statistics, data released
January 30, 2003 (1) Total compensation
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