Smaller Hospitals Struggle With Deficits

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Eight of Connecticut’s 30 acute-care hospitals ended the last fiscal year in the red—double the number that reported financial losses the year before, according to a new state report.

The data filed with the state Office of Health Care Access (OHCA) is a mixed bag of news about the financial health of the state’s hospitals. It shows that only six hospitals had operating losses in the 2011 fiscal year in contrast with nine that did not break even on operations in 2010. But when non-operating gains and losses are included, eight had negative total margins, or deficits.

In net operating income alone, Yale-New Haven Hospital led the pack, with a $52.9 million surplus in 2011—down slightly from 2010.

The University of Connecticut’s John Dempsey Hospital reported the largest operating loss at $16.6 million, which included bad debts.

Four of the other five hospitals that could not break even on operations were smaller in size—Johnson Memorial, Milford, New Milford and Windham, all with fewer than 150 beds.  St. Francis Hospital and Medical Center in Hartford was the only large urban hospital to have an operating deficit in 2011.  Griffin and Rockville hospitals had operating gains, but ended the year in the red because of other income losses.

Overall, the financial report shows that 73 percent of Connecticut hospitals achieved a positive total margin in FY 2011—down from 87 percent in the previous year. The average statewide margin of gain was 3.62 percent—down from 4.27 percent in 2010.

A spokeswoman for the Connecticut Hospital Association said hospital financial results vary for myriad reasons, but that generally, smaller hospitals have fewer resources and less flexibility in coping with “the many financial and operational challenges that all Connecticut hospitals face today.”

Among those challenges are “significant shortfalls in government reimbursement levels for Medicaid and Medicare patients, increasing levels of Medicaid patients, the hospital tax, required investments in information technology, and new equipment and technology,” said the hospital association spokeswoman, Michele Sharp.

In 2011, Gov. Dannel P. Malloy and lawmakers imposed a new tax on hospitals that officials say had a positive effect on some hospitals, but a negative impact on others.

Sharp said the spate of hospital mergers and affiliations taking place across Connecticut “reflects the steps some hospitals are taking to meet (the) challenges, which will intensify in the coming years with health reform.”

On the non-operating side, she noted, many hospitals are struggling with the same economic issues faced by other business sectors—particularly lower market returns and rising pension costs. Ten hospitals reported losses in non-operating revenue in 2011.

Generally, hospitals fared better in generating investment income than they did in recent years, said Ronald Ciesones of OHCA. In the 2008 fiscal year, the state’s hospitals had reported $182 million in total losses in non-operating revenue. In 2009, they lost $7.8 million in non-operating income. In 2010 and 2011, their combined non-operating revenue climbed into the positive column.

Showing the biggest improvements since 2010 were the Hospital of Central Connecticut in New Britain and Southington, William W. Backus Hospital in Norwich, Bridgeport Hospital and Norwalk Hospital. The Hospital of Central Connecticut affiliated with Hartford Hospital in February 2011, becoming part of a network that includes Windham Hospital and MidState Medical Center. Central Connecticut had ended 2010 with a $1.7 million operating loss; in 2011, it reported a $24 million gain.

Four hospitals—Saint Francis, Griffin, Milford and Windham—reported negative overall balances for both 2010 and 2011.

In a September 2011 report on the financial status of the state’s hospitals, OHCA officials had expressed concerns about hospitals with multi-year deficits.

“Hospitals need a positive total income (total margin) to operate effectively,” the report said. “Over several years, a negative total margin may be indicative of financial distress.  Those hospitals with a negative total margin are not receiving sufficient revenue to pay all of their expenses and must use other sources of funds such as cash reserves or the liquidation of assets to pay their expenses.”

The Hospital of St. Raphael in New Haven, which is preparing to merge with Yale-New Haven, in part because of financial problems, ended the 2011 fiscal year $3 million in the black. Its operating income rose from $491 million in 2010, to $501 million last year—though still only a third of Yale’s $1.49 billion in operating revenue.

In its merger application to the state, St. Raphael’s projected a significant shortfall in 2013.

Backus Hospital had the biggest positive margin in 2011—a 9 percent edge in revenues over expenses. Bridgeport was second with 8.1 percent.

To view the OHCA report click here.

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