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Financial squeeze awaits W.Pa. hospitals

| Thursday, Oct. 24, 2013, 12:01 a.m.

Hospitals across Western Pennsylvania could be forced to scrap some medical services, lay off more workers and reduce investment in their facilities and technology as financial pressures grow because of payment cuts and declining patient volume, an industry group warned as it reported profit margins at area hospitals were dropping steeply.

Higher levels of insurance coverage under the Affordable Care Act may eventually ease the strain, experts said, but glitches in the Obama-care website and Pennsylvania's decision to forgo an expansion of Medicaid make it unclear when hospitals will see a boost.

“More people will have more coverage than in the past” under Obama-care, said Randall Ellis, a health economist at Boston University. “But there is uncertainty because many states are reluctant” to expand Medi-caid or set up their own insurance-shopping websites.

Medical centers would be loathe to cut their services, but most have trimmed administration costs to the bone, said Denis Lukes, vice president of financial services for the Hospital Council of Western Pennsylvania.

The council, an industry group representing most hospitals in 30 counties of Western Pennsylvania, said average operating margin at 58 Western Pennsylvania hospitals was 1.81 percent for the fiscal year ended June 30. That's less than half the average operating margin of 4.44 percent at the end of the previous year.

“Over a one-year period, that's really huge,” Lukes said.

“They're continually re-evaluating their expenses,” he said of hospital executives. “But they're finding fewer and fewer of those items that they can reduce.

“No one want to reduce clinical staff,” but they may be forced to, he said.

Hospitals large and small across the region are feeling the pinch, but employment in one of the region's largest industries has not dropped — though growth has slowed.

Employment in hospitals, doctor offices and nursing homes accounted for 13.7 percent of the more than 1.1 million nonfarm jobs in August in the Pittsburgh region, according to state data. That was up slightly from 13.6 percent in August 2012, but flat compared with July 2013.

Hospitals across the region have taken actions to reduce costs, including cutting medical services, laying off workers and merging with other hospitals.

Uniontown Hospital in Fayette County said in August that it will ax its skilled nursing facility, psychiatric unit, rehab program and diabetes care center by the end of this year.

Several hospital systems in recent months have laid off administrative workers to reduce expenses, including UPMC, Allegheny Health Network, Washington Hospital and Excela Health.

And some smaller hospitals have agreed to be acquired by larger systems. Altoona Regional Health System was acquired by UPMC, and Sharon Regional Health System agreed to be bought by Community Health Systems, a large for-profit hospital company.

Operating margins were lower in the 2013 fiscal year, compared with the prior year, at five of seven hospital systems in the Pittsburgh area that report financial results.

UPMC, the largest hospital system in the region, had a margin of 1.4 percent in 2013, down from 3.6 percent the year before.

The former West Penn Allegheny Health System, which is now part of Highmark Inc.'s Allegheny Health Network, saw its negative margin drop further into the red.

Excela Health and Heritage Valley Health System, which have not reported results for the full 2013 fiscal year, swung from positive margins in 2012 to negative territory through the first nine months of the 2013 fiscal year. St. Clair Hospital's margin of 8 percent in 2012 declined to a still healthy 6 percent for 2013.

Washington Health and Butler Health had modest gains in operating margin for 2013.

More of the same is expected, Lukes said. Hospital payments are expected to continue dropping under Obamacare.

Michael Morrisey, a health economist at the University of Alabama's School of Public Health, said hospitals in urban areas, which tend to treat larger numbers of uninsured patients, face the biggest cuts in government funding.

“The argument being that they'll be getting coverage through Medicaid” to make up for the cuts, Morrisey said. “Except that 22 states have decided not to expand their Medicaid programs.”

Alex Nixon is a staff writer for Trib Total Media. He can be reached at 412-320-7928 or

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