State Report Shows Hospitals are Skating on Thin Ice

The state has released Massachusetts hospital financial performance data for all of 2017 and the picture is not at all rosy.

Nineteen of 62 hospitals that reported – or 31% -- had negative operating margins.  In 2016, 16 hospitals had negative operating margins.

The report from the state’s Center for Health information and Analysis (CHIA) found that the statewide median acute care hospital margin was just 1.6% -- plummeting from 2.8% in FY2016 for the same set of hospitals.  A hospital’s operating margin reflects the difference between its revenues and expenses from patient care. An operating margin of less than 3% is generally considered financially unhealthy by the lending agencies, meaning the cost of borrowing increases. (Half of Massachusetts acute care hospitals have an age of plant over 11 years—the older the average age, the greater the short term need for capital resources.) Sixty-five percent of hospitals in the CHIA report had operating margins below the 3% level.

All types of hospitals suffered in 2017 as compared to 2016. Median operating margins for community hospital dropped from 3% in 2016 to 0.9% in 2017, teaching hospitals went from 3.8% to 2.7%, academic medical centers from 1.9% to 1.8%, and what CHIA defines as “community high public payer” facilities dropped from 3.4% in 2016 to 2.9% in 2017.

The median statewide total margin – which includes investment income – was 3.2%, but more than a fifth of hospitals reported negative total margins.  Fifty-eight percent of hospitals had declining total margins compared to last year.

In the coordinated healthcare system, physician practices are owned or affiliated with hospital systems. The picture the CHIA report paints of the physician organization financial health is dire. Of the 42 physician organizations, only eight reported a profit in 2017. The median total margin for these physician organizations was negative 20.5%.

"Due to the increasing volume of public payer patients, the negotiating strength of commercial insurers, and steadily rising labor costs which account for two-thirds of a hospital’s expenditures, the bulk of the Massachusetts hospital community is operating on razor thin margins,” said Steve Walsh, MHA president & CEO. “Yet the most troubling financial threat is the Question One nurse staffing ballot question this November that would cost Massachusetts hospitals $1.3 billion to implement in the first year and $900 million annually after that. Apart from the scientific/patient care argument against ratios, the financial impact of the ballot question is enough to cause any reasonable proponent of our state’s impressive medical culture to vote No.”