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Nonprofit hospitals in Western Pa. feel pain in finances despite Affordable Care Act

| Thursday, Dec. 18, 2014, 10:39 p.m.

The financial pressure nonprofit hospitals are feeling is not expected to ease next year despite a boost in the insured population because of the Affordable Care Act.

Lower revenue and higher technology costs will continue, analysts at Standard & Poor's said Tuesday in issuing a negative outlook on the industry for 2015.

“The negative pressures aren't intensifying, but the sector's ability to come up with robust countermeasures is becoming harder and harder to do,” Martin Arrick, a Standard & Poor's analyst in New York, said in a conference call.

President Obama's health care law is providing subsidized or free health coverage to millions of Americans, but the effect on hospitals' finances is not yet noticeable, said Kevin Holloran, an S&P analyst in Dallas.

Holloran said hospitals are expecting to see an increase in patients with either private health insurance purchased through an exchange or with Medicaid coverage in states where the program has been expanded.

More paying patients would boost revenue and reduce bad debt. But, he said, “So far, right now, we're not seeing it. ... It's still improvements on the margin.”

Hospitals in Western Pennsylvania are experiencing the squeeze. Fewer patients are being admitted for hospital stays, and the level of uncompensated care is rising, according to the Hospital Council of Western Pennsylvania, a Warrendale trade group that publishes financial data on more than 50 hospitals each quarter.

Uncompensated care rose 7 percent to $1.1 billion for the quarter ended June 30, compared with the same quarter a year earlier, the council said. Admissions fell by 3 percent. And operating margins, while turning positive from a negative 0.3 percent in 2013, were a slim 2.8 percent.

To deal with the pressure, hospitals in the region cut employees. Full-time equivalent positions declined by 1,800 to 67,733 as of June 30, the council said.

As a consequence of tighter finances, Arrick and Holloran said they expect to see mergers and acquisition activity continue across the country as weaker hospitals look for stronger partners.

Western Pennsylvania is no stranger to that trend. Three hospitals were acquired here this year: Jameson Health System in New Castle announced a deal with UPMC; Sharon Regional Health System in Mercer County was bought by Community Health Systems Inc., a Tennessee for-profit company; and Conemaugh Health System in Johnstown was acquired by Duke LifePoint Healthcare of Tennessee.

“There is a lot of pressure, and we don't see that changing,” Arrick said.

Alex Nixon is a staff writer for Trib Total Media.

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