Health industry grows stronger
Most Mass. hospitals boosted results in '05 but need more cash for improvements
Most Massachusetts hospitals earned larger profits in fiscal year 2005, and the number of hospitals losing money continued to shrink, according to a snapshot of hospital finances released by the state.
Propelled mostly by higher operating revenues, the top quarter of hospitals achieved profit margins of 5.6 percent or better, compared to 3.7 percent or better in 2004, according to the state report.
Hospitals in the bottom quarter had profit margins of 1 percent or less in 2005, compared to 0.3 percent or less in 2004, the state said.
Nine hospitals lost money in 2005, 14 percent of the 65 in the state. Twenty-one percent posted losses last year, and in 2002 nearly half broke even or lost money.
''The financial health of the hospital industry showed significant improvement," according to the state's snapshot. ''Overall profitability improved substantially."
The financial performance is contained in year-end disclosure reports hospitals are required to file with the Division of Health Care Finance and Policy. The fiscal year for hospitals ended Sept. 30, and the results were posted Friday.
The division did not offer an explanation for the improved performance. Hospital officials have separately credited a number of factors, including better contracts with insurance companies, better expense control and collections practices, and -- for advanced teaching hospitals -- more complex cases that generate increased revenues.
But the state's hospitals still need more money to invest in capital improvements, said Ronald M. Hollander, the president of the Massachusetts Hospitals Association. ''I wish our hospitals were healthier," he said. ''Even hospitals that are in the black, their margins are much thinner than they should be."
Donald Thieme, president of the Massachusetts Council of Community Hospitals, said nonoperating profits improved because of better investment returns. He said slim operating profits continue to starve vulnerable community hospitals of capital, because they don't have sufficient revenue to support significant additional debt payments, he said.
Hospitals, supported by insurance companies, are asking Governor Mitt Romney's administration and the Legislature for larger reimbursements to treat patients receiving care under MassHealth, the state's Medicaid program. The request is part of deliberations on a broader reform package to provide coverage for more than 500,000 residents who lack insurance.
The Romney administration and a key Senate negotiator said yesterday they continue to support giving hospitals more money from Medicaid.
''If the economy takes another dip, they could easily go back into the red. We want them to be investing this money in quality care and safe care," said Senator Richard T. Moore, chairman of the Legislature's Committee on Health Care Financing.
Hospitals and health insurance firms say the state Medicaid program shortchanges hospitals, which in turn shifts costs onto employers and employees paying for private insurance. Private health insurance premiums in Massachusetts have jumped by more than 10 percent in each of the last five years, and double-digit increases are expected again in 2006.
Moore and Timothy Murphy, Romney's secretary of health and human services, said they want to reduce the pressure on premiums. Murphy said Romney wants to link higher Medicaid reimbursements to quality improvements, similar to other ''pay-for-performance" plans that have been proposed in public and private insurance plans around the country.
Meanwhile, a new analysis of American Hospital Association data by Boston University healthcare finance professor Alan Sager shows that per-capita hospital spending rose faster in Massachusetts in 2004 than it did in the rest of the country, keeping the state at the number one rank for hospital costs for the second year in row.
Hospital spending was $2,357 per person, compared to the national average of $1,639, a 44 percent gap, Sager said. Massachusetts has historically had substantially higher hospital costs than the rest of the country, but the 44 percent gap has not been matched since 1975, according to Sager's analysis.
A number of other factors are involved, Sager said, including how frequently and in what numbers state residents go to hospitals to receive care. The type of hospitals also affects costs, he said. Outpatient visits made to doctors working in hospitals or hospital-owned clinics were 61 percent higher than the national average, he added.
Christopher Rowland can be reached at crowland@globe.com.To read the full report on the Massachusetts hospital industry, by the state's Division of Health Care Finance and Policy, go to boston.com/business. 