ANN ARBOR, Michigan — Hospitals are getting financially healthier, though that could have more to do with a rebounding stock market than improvements in day-to-day operations.
The median profit margin of U.S. hospitals rebounded to just over 8 percent in the second quarter — back to its pre-recession level — according to an analysis of hospital financial performance by Thomson Reuters. The recovery was broad-based, with small, medium and large community hospitals, teaching hospitals and major teaching hospitals showing positive median margins, Thomson Reuters said.
The financial analysis firm tracked two dozen financial indicators, using proprietary and public data to analyze the balance sheets of more than 400 hospitals nationwide. Its study evaluated trends in revenue and profit, employment levels, closures, in-patient volumes, days of cash on hand and case mix to gauge the fiscal health of the hospitals.
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Total median profit margins were 8.4 percent in the second quarter, rebounding from 0.37 percent in the third quarter of 2008, according to Thomson Reuters. The median margin is the value in the middle of the range. Only 20 percent of hospitals operated in the red during the second quarter, a number that is consistent with pre-recession periods, Thomson Reuters said in its report. (pdf)
“I think that’s probably realistic,” said Kevin Theiss, vice president of revenue cycle at Summa Health System in Akron, Ohio.
However, it is likely that the “massive” rebound in the stock market during the second quarter had more to do with rebounding profit margins than rises in operating income from medical operations. A hospital’s total profit margin comes from return on investments, as well as operating income, Theiss said.
Other Ohio hospitals contacted about the study did not have their most recent financial numbers available. While she didn’t have a current profit margin, Cleveland Clinic spokeswoman Eileen Sheil noted that the Clinic cut costs to brace for the recession. So did Summa, Theiss said.
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“From our perspective, our operating margin is slightly down from last year, that’s the true core business of delivering health care,” he said. “We have had a modest gain on investments and we’re probably consistent with the median hospital” in the Thomson Reuters analysis, he said.
Hospitals in Ohio have laid off hundreds of workers in the past year because of a rotten economy. Hospitals like the Cleveland Clinic and Summa have been making only essential hires. Federal health care reform aside, these same institutions are bracing for new costs: a corporate franchise fee estimated to cost Ohio hospitals $145 million in the next two years, according to the Ohio Hospital Association.