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W.Pa. hospital profits on shaky footing as Obamacare changes pend

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Saturday, March 29, 2014, 12:01 a.m.

Profits were up at many Western Pennsylvania hospitals at the end of last year, thanks to higher revenue, a turnaround from the previous year when many reported losses from their operations.

The positive trend may be short-lived, however.

The Affordable Care Act, which was fully implemented this year, was generally viewed as a boon to hospitals because its primary aim is to increase the number of Americans with health insurance.

But even if more patients gain coverage and seek out hospital care, the boost could be offset by several negative consequences for the industry that also result from President Obama's signature health reform law.

Government payments to hospitals are being cut under the law. The number of uninsured people in Pennsylvania will remain high because leaders in Harrisburg refused to expand the state's Medicaid program. And even with insurance, some patients could put off medical care or be unable to pay their bills because of higher insurance deductibles and other out-of-pocket spending requirements included in many health plans sold to individuals through the law's online exchanges.

“Hospitals are very much in favor of seeing more individuals getting covered,” said Denis Lukes, vice president of financial services for the Hospital Council of Western Pennsylvania. “But we're also very concerned.”

While the financial squeeze could worsen in the coming year, the bottom lines of many hospitals in Western Pennsylvania are not showing signs of trouble yet.

Higher revenue helped drive operating income up at hospitals in the six months ended Dec. 31, according to a Tribune-Review analysis of financial reports from eight hospital systems representing 33 hospitals in the region.

For instance, Butler Health, the owner of Butler Memorial Hospital, reported $131.7 million in revenue in the last six months of 2013, a 7 percent increase compared with the last six months of 2012. That increase led to a $2.5 million operating profit for the period, compared with a $600,000 loss the year before.

UPMC, West Penn Allegheny Health System, St. Clair Hospital, Washington Health and Heritage Valley Health System also experienced higher revenue and improved operating margins in the July-December period, compared with the year before.

Heritage Valley, which owns hospitals in Sewickley and Beaver, said its revenue improved because outpatient procedures had increased and it paid more attention to proper reimbursement coding.

“We want to make sure the physician appropriately documents and codes the visit,” said Bryan Randall, the system's chief financial officer.

Moody's Investors Service warned this week that the Affordable Care Act “creates conflicting credit implications for not-for-profit hospitals.” The New York credit rating agency said the financial gains from more patients are being eroded.

A range of cuts in reimbursements from the Medicare program also are a concern, Moody's said.

“When the ACA was being drafted, the hospital industry agreed to more than $150 billion in Medicare rate cuts on the premise that the benefits of a greater pool of paying patients would outweigh the revenue lost due to rate cuts,” the rating agency said.

Pennsylvania's Medicaid program was not expanded, leaving at least 500,000 uninsured people in the state without affordable insurance options.

Gov. Tom Corbett has proposed an alternative to expansion that would use federal funds to buy private insurance for poor people, but the plan has yet to be approved by federal authorities.

Through the end of February, only about 160,000 people across the state had signed up for coverage under the president's health insurance reform, also known as Obamacare, out of an estimated 1.2 million uninsured, according to the Department of Health and Human Services.

About eight out of 10 health plans sold on the federal exchange have been in the lower-cost bronze or silver category. These plans trade lower monthly premiums for higher out of pocket spending.

Moody's said these plans “have very high deductibles, often at levels twice the national average” of employer-sponsored coverage, and ranging from $3,000 to $5,000 for individuals. The law caps annual out-of-pocket spending at $6,350 for an individual and $12,700 for a family.

“We believe there is significant risk that people covered by the most popular insurance plans will be unable or unwilling to meet their deductibles,” Moody's said.

Lukes echoed the concern about patients' increasing out of pocket costs, noting that employers for years have been passing along rising health costs to workers in the form of larger deductibles.

“What I'm really concerned about for hospitals is next fall when employers look at plans for 2015,” he said. “Are they going to offer plans with even bigger deductibles?”

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

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