Study: Philadelphia Hospital Revenue Margins Down in 2014

The growth of uncompensated patient care at hospitals in the Philadelphia region and statewide has contributed to a decrease in the total profit margins between 2013 and 2014, according to a report released by the Pennsylvania Health Care Cost Containment Council (PHC4).

Despite the slimmer margins, most of the area hospitals posted healthy balance sheets, with Main Line Health System’s four locations collectively leading the Philadelphia suburbs with a total net income of $156 million. St. Mary Medical Center had the largest net income in the suburbs at $69.4 million. In the city, the Hospital of the University of Pennsylvania netted $380.3 million to lead the pack, followed by Children’s Hospital of Philadelphia at $223.4 million.

According to the report, nine hospitals in the city and nine in the suburbs lost money in 2014, led by Mercy Suburban Hospital’s loss of $40.2 million. According to the Philadelphia Business Journal, Mercy Suburban will be sold to the same system that manages Roxborough Memorial Hospital and Lower Bucks Hospital, which both posted losses of $7.5 million and $8.2 million, respectively.

Net income of hospitals in Philadelphia’s western suburbs:

• Main Line Health - Paoli $56.3 million
• Main Line Health - Lankenau $47.8 million
• Main Line Health - Bryn Mawr $42.6 million
• Pottstown Memorial $24.1 million
• Riddle Memorial Hospital $10.5 million
• Phoenixville Hospital $6.08 million
• Physicians Care $4.1 million
• Mercy Fitzgerald Hospital $2.5 million
• Delaware County Memorial Hospital ($1.7 million)
• Jennersville Regional Hospital ($1.8 million)
• Chester County Hospital ($5.5 million)
• Crozer-Chester Medical Center ($7.8 million)
• Brandywine Hospital ($8.5 million)
• Mercy Suburban Hospital ($40.2 million)

The statewide total margin realized by the General Acute Care hospitals in Pennsylvania decreased by 0.36 percentage points, from 6.06 percent to 5.70 percent, during the fiscal year that ended June 30, 2014. Statewide operating income decreased from $1.8 billion in 2013 to $1.7 billion in 2014. Statewide average operating margins decreased from 4.67 percent to 4.30 percent.

“While the data shows many Pennsylvania hospitals experienced relatively healthy margins in fiscal year 2014, 34 percent lost money on operations and 28 percent lost money overall,” said Joe Martin, executive director of PHC4.

The report also shows the value of uncompensated care—either uncollectible debt or charity care—provided by hospitals in the commonwealth grew by 2.2 percent in FY14, or about $22 million, to a total of $1.07 billion. Uncompensated care, care hospitals provide for which they are not paid, either due to uncollectible debts or charity care, has risen from $461 million in 2001 to $1.07 billion in 2014, according to PHC4.

“The continued growth of uncompensated care remains a major concern for Pennsylvania hospitals,” said Martin.

Other highlights of the report include:

• Statewide operating income decreased because the increase in operating expenses outpaced the increase in operating revenues. Pennsylvania hospitals collectively posted an increase in operating revenue of 3.1 percent, or $1.2 billion, while operating expenses increased 3.5 percent, or $1.3 billion. Total operating revenue increased to $40.5 billion, and operating expenses increased to $38.7 billion in 2014.
• There was a general improvement in the number of hospitals with a positive three-year average total margin in 2014. Eighty percent, or 131, hospitals experienced a positive three-year average total margin in 2014.
• Uncompensated care as a percent of net patient revenue remained relatively unchanged at 2.78 percent.
• On a statewide basis, the amount of time the average bill remained in accounts receivable decreased 1 day to 45 days in 2014.
• The number of statewide hospital discharges reported by Pennsylvania hospitals declined from 1.65 million in 2013 to 1.60 million in 2014.
• The statewide total number of patient days declined for the seventh consecutive year at Pennsylvania hospitals, from 8.62 million in 2013 to 8.35 million in 2014.
• Of the $38.3 billion in statewide net patient revenue 54.7 percent, or $20.9 billion, was derived from inpatient care. Statewide inpatient revenue increased 1.8 percent during 2014.
• Statewide outpatient revenue increased 4.9 percent during 2014, rising to $17.1 billion. Outpatient revenue made up 44.8 percent of total net patient revenue in 2014. Hospitals reported a 3.2 percent decrease in the number of outpatient visits in 2014 to 38.0 million visits.