State reports R.I. hospitals did better in ’05 than in ’04

A new report from the R.I. Department of Health shows the state’s 13 acute-care hospitals were slightly more profitable overall last year than in 2004, and their general outlook is “strong and improving,’’ but some are still struggling with net losses and cash-flow problems.

The report, titled “The Health of RI’s Hospitals,” is based on audited financial statements for the year ending last Sept. 30 submitted by each institution, as well as on historical data. It also compares the state’s hospitals with the industry in the Northeast and nationwide.

The resulting picture isn’t rosy, but it’s positive in terms of the trends it shows:
n Hospitals’ average profit margin rose to 3.2 percent in 2005, from 2.4 percent in 2004.
n Hospitals’ overall net worth increased 11 percent, slightly less than in 2004, but far better than the overall 2-percent decline in 2003.

n Hospitals’ debt-to-capitalization ratio declined slightly to 24 percent, from 26 percent in 2004 – indicating a slightly lower relative reliance on borrowing. At the same time, hospitals’ debt-service coverage improved, to a 4-to-1 ratio between available cash flow and debt service, up from 3.6 to 1.

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n Hospitals’ overall liquidity remained about the same, but their debt-collection process sped up, reducing the average time in patients’ accounts receivable from 50 to 46 days.
“In 2005, Rhode Island hospitals had a positive year,” concludes the report, authored by Bruce Cryan, of the Health Department’s Center for Health Data & Analysis.

In a news release about the report, Dr. David R. Gifford, the state health director, stressed that the hospitals’ financial well-being has important implications:
“Rhode Island’s hospitals are a $2.6 billion industry with an annual payroll of $1.5 billion, and their financial health, particularly among the community hospitals, remains an issue as we look at the changing health care environment in our state,” Gifford said.

“Community hospitals are critical to Rhode Island’s health care system and are an economic driver in the state,” he added. “Therefore, we need to look at how community hospitals fit into the broader health care system.”

The report notes yet another reason why hospitals are important to the state’s economy: They make more than $164 million annually in capital investments, Cryan wrote.

This is the second report on hospitals’ finances issued by the state this year. In May, Cryan issued a compilation of financial data (with no accompanying analysis) , which showed, for example, that Rhode Island’s hospitals made an $84.1 million overall profit in 2005 – though less than half of it came from net operating income.

The data also showed big disparities between the hospitals, with The Miriam Hospital, for example, producing $10.1 million in net operating income while Kent Hospital lost $2.37 million, Memorial Hospital of Rhode Island lost $1.56 million and Landmark Medical Center lost $1.62 million from operations.

The new report shows Newport Hospital with the biggest profit margin, 12 percent, but that obscures the fact that $11.5 million of its $12.2 million profit came from non-operating income and gains (from operations, the hospital netted $753,000).

Bradley Hospital ranked second, with a 6.3-percent profit (mostly from operating income), followed by Miriam, at 4.9 percent, Butler Hospital at 4.5 percent, and Rhode Island Hospital at 4 percent.

Three hospitals had net losses: 0.1 percent for Kent, 0.9 percent for Landmark, and 3.4 percent for Westerly Hospital.

In an interview after the hospital data was first released, Landmark CEO Gary J. Gaube said one of the biggest issues his hospital has been facing is uncompensated care, which he said will amount to $10 million this year.

“That’s a lot for our hospital,” Gaube said. “As we go forward and you look out at that problem, it’s not going to go away. There are so many people who have jobs but have elected not to take health insurance because it’s too expensive, and then it creates a problem when they do need health care. There has got to be a way that we can insure more people.”

Landmark’s loss resulted, in part, from a bond refinancing that cost about $1 million, Gaube said, so the hospital is “close to a break-even operation,” and he expects the bottom line to look better as specialty programs such as the new cardiac center keep growing.

Landmark also is increasingly relying on fundraising, trying to build an endowment through the year-old Landmark HealthCare Foundation. “We’re out there aggressively looking,” he said, “but the large dollars aren’t in the community. We have to go outside.”
Landmark has been fundraising in nearby Massachusetts, for example, Gaube said, and it’s using the cardiac and cancer centers to persuade area residents that Landmark is valuable to their communities.

In the long run, Gaube said, “I’d like a 5- to 8-percent margin,” which would be at or slightly above the industry standard.

Looking at the industry statewide, Edward J. Quinlan, president of the Hospital Association of Rhode Island, said the new financial report doesn’t fully reflect the difficulties that local hospitals face due to poor reimbursements from the public and private sectors.

“Our operating margins continue to lag the nation,” he said. “We have a historic trend line here that is not sustainable. We continue to receive reimbursements that are below cost. We have delayed capital investments.”

Overall, hospitals in Rhode Island are “under significant stress,” Quinlan said, and the figures his group has collected for the first six months of the 2006 fiscal year show several member hospitals are running deficits.

“I think the industry in this state, going back to the Balanced Budget Act in 1997, has undergone so much financial stress” that their viability has been threatened, Quinlan said. Other than perhaps Miriam and Women & Infants Hospital, “everybody has been affected,” he said, and though “we’ve taken a few small steps, there isn’t anyone in this state who feels that we’re on a continued improvement road.”

Looking at Cryan’s assessment, Quinlan said: “Are we moving in the right direction? Yes. But we have many, many miles to walk before we’re where we should be.”

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