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Western Pennsylvania hospital profits improving

| Wednesday, Aug. 13, 2014, 10:39 p.m.

The median profit margin for nonprofit hospitals in the nation declined for the first time in five years, credit-rating company Standard & Poor's said in a report on Wednesday.

The drop in profit from operations last year occurred because patient volumes fell as expenses increased, S&P said. The same situation squeezed profits at hospitals in Western Pennsylvania in 2013.

Industry group Hospital Council of Western Pennsylvania in May reported that average operating margin at 58 hospitals in the region was 1.81 percent last year — less than half the average operating margin of 4.44 percent in the previous year.

“We believe the sector is at a tipping point where negative forces have started to outweigh many providers' ability to implement sufficient countermeasures,” analyst Margaret McNamara said in the S&P report.

S&P, which has a negative outlook on the entire U.S. nonprofit hospital industry, said it expects the compression in operating margins to continue through this year.

But that hasn't been the case here.

Hospital networks large and small across Western Pennsylvania have showed improved results this year, countering S&P's prediction of a further squeeze on operating margins. Hospital executives have said that private insurer reimbursements have increased, and some have experienced a rebound in surgeries and greater patient volumes at outpatient centers.

The region's biggest hospital system, UPMC, experienced an 8 percent increase in revenue, an 8 percent rise in expenses and a 4 percent boost to operating profit during the January-March quarter this year, according to its most recent financial report.

Smaller systems showed the same trend of higher revenue, expenses and income, including the former West Penn Allegheny Health System, which narrowed its loss on strong revenue growth in both quarters this year. The Highmark Health-owned network has cited more higher-cost procedures and better reimbursement levels for its growing revenue.Excela Health and Butler Health both swung from losses to profits this year on higher revenue in the January-March quarter.

And St. Clair Hospital in Mt. Lebanon saw its operating profit skyrocket 47 percent as revenue shot up 5 percent on volume increases at its expanded Village Square outpatient center in Bethel Park and a Peters center opened in January.

“St. Clair continues to enhance its position as the leading provider to its service area, as well as improve its readiness for the evolving regional and national healthcare market,” the hospital said in its most recent financial report.

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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