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Operating costs exceed income at 15 of 29 W.Pa. hospitals

| Wednesday, May 21, 2014, 12:01 a.m.

More than half of Western Pennsylvania's hospitals lost money on operations last year, compared to about 1 in 10 the year before, as expenses related to upgraded technology, federal health care reform and charity care grew faster than revenue.

Most hospitals making money on operations showed a decline in profit margin, highlighting the financial squeeze that medical centers face, according to data released on Wednesday by the Pennsylvania Health Care Cost Containment Council.

Despite the declines in operating margins, many of the region's 29 hospitals maintained positive total margins, which include gains from investments and donations, said the council, an independent state agency that tracks the finances and quality of the state's hospitals.

“Hospitals dependent on income sources they do not control are in the challenging position of relying on a volatile stock market and charitable giving, or finding other revenue sources, to remain fiscally healthy,” Joe Martin, the council's executive director, said in a statement accompanying the annual financial report.

Fifteen of the 29 hospitals, or 52 percent, in Western Pennsylvania produced negative operating margins in the fiscal year ended June 30, compared with four of 28 hospitals, or 14 percent, the year before. The council added UPMC East in Monroeville, which opened in July 2012, to its analysis.

Statewide, 35 percent of 169 hospitals had negative operating margins, the council said.

Hospital advocates urged an end to cuts in payments from the federal Medicare and Medicaid programs, and speedy approval of Gov. Tom Corbett's proposal for an alternative to Medicaid expansion under President Obama's Affordable Care Act.

“In too many communities, hospitals are struggling financially,” said Andy Carter, CEO of the Hospital & Healthsystem Association of Pennsylvania, an industry group.

Uncompensated care by the state's hospitals last year totaled more than $1 billion, up 5 percent from the previous year and 35 percent higher than in 2008.

“Right now, health care is anything but business as usual,” Carter said. “Faced with the need to invest in big changes and cope with successive waves of federal cuts, hospitals are being forced to make difficult decisions about health care services and jobs.”

Hospitals including UPMC, Allegheny Health Network and Excela Health cut jobs during the past year in response to narrowing operating margins.

Hospital employment in the state declined by 3,900 positions in February, compared to a year earlier, the association has said. Western Pennsylvania hospitals eliminated 2,000 jobs during 2013, the Hospital Council of Western Pennsylvania has said.

Moody's Investors Service said nonprofit hospitals across the country are experiencing expenses that rise faster than revenue. In the 2013 fiscal year, average expenses grew by 4.6 percent, and revenues increased by 4.1 percent, Moody's said.

“Factors leading to the decline in performance include low rate increases from commercial payers and rate cuts from Medicare and Medicaid,” analyst Jennifer Ewing said. “There has also been a shift in the mix of payers to more governmental ones from commercial ones.”

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

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