R.I. Hospital leads the way in trimming operating losses
A financial turnaround at Rhode Island Hospital in fiscal year 2002 appears to have helped mostly erase the aggregate operating loss that has marked the state’s hospital industry since 1997.
Combined, the state’s 12 acute-care hospitals lost about $3.2 million in fiscal year 2002 (ended Sept. 30), compared with a $21.5 million loss in 2001, according to a preliminary estimate from the Hospital Association of Rhode Island.
The result would be the hospital sector’s best financial performance since 1997, the year Congress passed the Balanced Budget Act, which has been blamed for severely eroding hospitals’ Medicare revenue. The state’s hospital industry lost an average of $35 million annually from 1998 through 2001, for a total of $141.2 million.
Edward J. Quinlan, president of the hospital association, said a “significant turnaround” at Rhode Island Hospital, which lost $28.3 million in fiscal 2001, largely was responsible for the recovery.
The association’s statewide estimate is based on preliminary, unaudited financial data from individual hospitals, most of which have been presenting financial results to their boards in recent weeks.
Jane Bruno, a spokeswoman for Lifespan, Rhode Island Hospital’s corporate parent, said that the hospital expects to post another loss from operations for fiscal year 2002, although it has “made significant improvements in overall financial performance.”
Bruno said better bill collection from third-party payers, sharing services with other Lifespan affiliates, reduced claims denials through better documentation and higher patient volumes – both inpatient and outpatient – helped bolster the hospital’s bottom line.
Still, the industry is not a picture of health, Quinlan warned. Two-thirds of the state’s hospitals are operating in the red.
“We’re up from a volume standpoint, but eight of 12 hospitals continue to lose money, and that’s just not sustainable,” Quinlan said.
Hospitals continue to face a multitude of cost pressures, most notably higher prescription-drug prices, the soaring cost of providing health insurance to employees, and lofty labor expenses, Quinlan said. For instance, the industry’s part-time employees – which generally are more expensive to employ than full-time workers – grew 6 percent in 2002, while full-time employment was up just 1 percent.
Meanwhile, reimbursement from federal sources like Medicare and Medicaid and from commercial insurers has not kept pace with expenses. Another round of Medicare cuts to hospitals took effect Oct. 1. And many of the state’s hospitals are in the midst of negotiating new contracts with Blue Cross & Blue Shield of Rhode Island and UnitedHealthcare of New England.
“It’s been extremely difficult to get fair reimbursement rates from third-party payers,” said Gary J. Gaube, president and chief executive of Landmark Medical Center in Woonsocket. “With shrinking reimbursement dollars, we’ve had to look inward to become more efficient.”
Landmark contributed to the industry’s brightening financial picture: It trimmed its operating loss to $1.4 million in 2002 after losing $12 million in 2000 and about $5 million in 2001. Gaube said the hospital has been able to cut costs by outsourcing some services and realigning a few departments, which helped to offset higher labor, prescription-drug and insurance expenses.
Overall, though, hospitals in Rhode Island are financially sicker than those in other states: One-third of hospitals nationally are losing money, according to the American Hospital Association, compared with two-thirds of Rhode Island hospitals that are operating in the red.
Quinlan said the persistent losses impede hospitals from upgrading facilities and adding new, more expensive services. He said hospitals should be able to maintain a 3 to 4 percent operating profit in order to build reserves for investment in their facilities.
“We don’t disagree with the need of commercial insurers to build some reserves; we only hope there is a similar recognition that hospitals need to be equally protected against swings in the market,” Quinlan said. “Break even is not the bar by which the hospital industry should be measured.”
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