Report finds state hospitals’
profit margins lag nation
A fresh look into the financial picture at the state’s hospitals renders a stale conclusion: they’re losing money.
What’s striking about the Rhode Island Department of Health report released April 11, however, is the disparity in profitability between hospitals here and institutions in other states. Profit margins at hospitals nationally averaged between 3 and 4 percent between 1998 and 2001, while margins in Rhode Island were negative.
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“We last did this (financial analysis) in 1990, and the comparative profitability is still poor,” said Bruce Cryan, the Department of Health analyst who wrote the report. “Whatever endemic situation was in place back then has just carried on.”
That situation, Rhode Island hospital executives say, is one of inadequate reimbursement rates from the federal government and HMOs.
The state’s hospital industry is pointing to several other measures in the report that reflect positively on hospital efficiency and management of assets. For example, hospitals in Rhode Island fared as well or better than their peers in controlling debt, return on assets, and liquidity, or the ability to pay bills.
“Our problem is strictly and solely a revenue problem,” said Robert Urciuoli, president of Roger Williams Medical Center. “We’re essentially being under reimbursed for what we’re doing.”
The report analyzes the financial performance of the state’s 14 hospitals from 1998 to 2001, which was the most recent year audited results were available. It compares Rhode Island’s hospitals to those in the Northeast and to a national average.
Hospitals are facing soaring pharmacy, labor, energy and malpractice-insurance costs. But industry officials say hospitals in every state are under the same pressures, and Rhode Island still pales in comparison to their peers when it comes to the bottom line.
Indeed, the report seems to lend some credence to the industry’s long-held view that much of the problem lies on the revenue side of the equation. Administrators frequently have cited a 2001 report by a congressional advisory committee that said HMOs reimburse hospitals in Rhode Island just 92 percent of their costs – the lowest rate in the country.
“The data have been independently analyzed and they all reach the same conclusions,” said Edward J. Quinlan, president of the Hospital Association of Rhode Island. “The operating margin issue is very serious and it’s not sustainable.”
Several hospital chief executives met earlier this month with Gov. Don L. Carcieri to air concerns over financial stability, Quinlan said. Carcieri has formed a working group to, in part, take a harder look at the reasons for hospitals’ financial woes.
Even a bit of good news in the Department of Health report has a downside.
Hospitals in Rhode Island have less debt than hospitals in the Northeast and nationally. But ultimately that is a symptom of poor profitability, which crimps access to capital, the report says.
“The amount of debt on the books is less important than the ability to repay (the debt), which is a function of profitability,” the report reads. “Unfortunately Rhode Island’s profitability suffers in comparison to hospitals elsewhere.”
In other words, because the state’s hospitals are losing money, their bond ratings generally are lower than their peers, which makes it harder and more expensive to borrow money to pay for capital projects and equipment.
“Clearly we’re not in the best financial position to go to Wall Street to borrow money,” Urciuoli said.
He said Roger Williams received state approval a few years ago to proceed with a $10-million renovation and expansion of its operating rooms, which are nearly 40 years old. Those plans have been on hold for more than two years, though, because the hospital “can’t access the bond markets right now,” Urciuoli said.
Quinlan said hospitals’ inability to tap the capital markets is a particular in Rhode Island, which has some of the oldest facilities in the country.
The report also ranks individual hospitals in the state using a composite score of 11 measures, including profitability, liquidity, capital structure and asset efficiency.
Miriam Hospital, Kent County Memorial Hospital and St. Joseph Hospital performed the best financially during the four-year analysis period. The weakest financial performers: Landmark Medical Center, Rhode Island Hospital and Butler Hospital.
Cryan said the department had not done the financial analysis of the hospital in more than a decade because it “hadn’t had the resources.” But there has been growing interest in taking a closer look at the aggregate financial data on the part of the state’s hospital industry, he said.
Rhode Island Hospital Association’s 12-member hospitals lost a combined $141.2 million from 1998 to 2001, according to the association. Two-thirds of the state’s hospitals are losing money, whereas only one-third of hospitals nationally is in the red, according to the American Hospital Association.
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