Rhode Island’s hospitals did slightly better, overall, in 2004 than they had in 2003, but some still lost money, and those with profits were hardly awash in cash.
The nine members of the Hospital Association of Rhode Island made, together, an $11.8-million profit in the year ending Sept. 30, up from $7.0 million in fiscal 2003, association president Edward J. Quinlan said in an interview.
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Measured against the hospitals’ total 2004 revenues – about $1.5 billion – that means their overall profit margin was less than 1 percent. And the total includes the $7 million that Blue Cross & Blue Shield of Rhode Island paid back to hospitals a year ago.
But the overall figure also masks big variations among the HARI members, Quinlan noted: Westerly Hospital lost about $4.5 million, while Miriam Hospital did best, with about a $10-million gain. Results among non-HARI members were similarly uneven: Women & Infants’ Hospital, for example, reported a $4.4-million gain, while fellow Care New England member Kent Hospital posted a $1.4-million loss.
All of Rhode Island’s hospitals are nonprofits, so they don’t need to produce dividends for shareholders. However, to ensure financial stability, hospitals need to be able to build up some reserves, and they need to have money to reinvest in capital improvements, Quinlan said.
The national standard is about a 3-percent to 4.5-percent profit margin, he said.
Rhode Island’s hospitals have been falling short of that standard – and, in some cases, losing millions – since the federal Balanced Budget Act of 1997 cut Medicare reimbursements to providers.
Since then, a gap between cost increases and annual Medicare pay hikes has created even greater shortfalls, especially for community hospitals, which tend to serve more elderly patients than specialty facilities, and have fewer alternate sources of income.
In 2001, hospitals in the state averaged a 0.7-percent net loss – ranging from a 5.9-percent loss at Landmark Medical Center, to a 6.0-percent profit at Miriam, according to figures compiled by the state Department of Health.
In 2002, the losses were even greater, 0.8 percent on average, with Roger Williams Medical Center taking a 12.9-percent hit, and Miriam doing best with a 4.9-percent gain. But things improved, overall, in 2003, with an average profit of 0.6 percent – though most of the community hospitals still lost money, with Westerly Hospital doing worst, at 5.3 percent.
In this context, the preliminary figures provided by Quinlan and by Care New England officials suggest hospitals continued their recovery in 2004. Yet despite the variations, and despite some hospitals’ ability to post profits, the last few years’ history doesn’t bode well for the future of health care in Rhode Island, Quinlan said.
“It tells you how fragile we are,” he said. Every year, labor costs, medical liability costs, energy, technology and other expenses keep rising, he said, and “there are many elements … that you have no ability to control.” On the revenue side, Quinlan added, hospitals’ control “is just as limited.”
With Medicare and other government programs, hospitals just get the going rate – even if it costs one hospital more than another to care for the same patient. That’s been a real challenge for Kent, said John J. Hynes, president and CEO of Care New England, because it’s been hard-hit by the national nursing shortage, and it’s had to hire temporary nurses to maintain proper staffing levels. The temps, who may have to be flown in from other parts of the country, cost more than the hospital’s staff, Hynes said, but it doesn’t make a difference when Kent seeks reimbursement from Medicare.
With insurers, each hospital has a contract that sets reimbursement rates – some better than others, with university-affiliated facilities usually getting more, Quinlan said.
Hynes said all the Care New England hospitals have solid contracts with Blue Cross and UnitedHealthcare of New England, but increasingly, the financial outcomes predicted at signing time are being undercut by changes in patients’ insurance coverage.
Payment rates for specific procedures are based on expected volume, Hynes noted, and employers are increasingly choosing plans that cover fewer services, and often include substantial deductibles and co-pays. The ranks of the uninsured are also growing, Quinlan noted. Every hospital plans on providing some care for free or at a discount – it’s part of their mission – but bad debts threaten to become a major problem, both men said. Hospitals with busy emergency rooms are particularly hard-hit, Hynes said. “It’s kind of scary.”
Preliminary figures for South County Hospital illustrate this: In 2004, it reported almost $3.4 million in uncompensated care (including charity care and bad debts), up from $3.2 million in 2003. That’s 4.7 percent of 2004 operating revenues, and 15 times the year’s bottom-line profit of $223,872.
Given the financial climate, Hynes said, being able to manage and minimize losses while maintaining good care is in itself an accomplishment. Across Rhode Island, Quinlan said, breaking even seems to have become hospitals’ goal.
But that’s not good enough, Quinlan said. Struggling financially limits hospitals’ ability to invest in improving and expanding their facilities, buying new technology, and otherwise enhancing the quality of health care in Rhode Island, he said.
And as the federal deficit grows, the threat of further Medicare cuts and more losses increases.
“We lag the nation. We have postponed capital investments over time. You have an erosion of some hospitals’ endowments,” he said.
“The warning signals have been there for a number of years. … How do you sustain a high-quality health care system if that recognition isn’t there?”
