Solid Year for Hospitals Administrators Warn That Rising Expenses Make for ‘Difficult’ Environment

By Tom Spoth, The Sun, Lowell, Mass.

Apr. 1–The state’s hospitals increased their overall profits for a second straight year during fiscal 2006, according to newly released data, but administrators say rising expenses and declining margins could spell trouble for the industry.

Local hospitals all enjoyed higher revenue in fiscal year 2006, but operating margins — which gauge the hospitals’ ability to turn that revenue into profit — declined at most Greater Lowell medical facilities.

“It’s a difficult environment,” said Tom Klessens, chief financial officer at Saints Medical Center in Lowell. He cited the rising cost of labor and declines in reimbursement rates from the Medicare and Medicaid program as stumbling blocks for hospitals.

According to data from the state Division of Health Care Finance and Policy, Saints saw its profits from operations dip from $2.77 million in fiscal year 2005 to $2.44 million in 2006. Margins slumped a bit as well, from 2.2 percent to 1.9 percent, although revenue was up slightly.

The hospital’s total profits tumbled

from $6.1 million to $3.9 million, but Klessens said the decrease was largely due to accounting issues — in 2005 Saints sold off some investments, a move that artificially inflated profits that year.

Normand E. Deschene, president and CEO at Lowell General Hospital, said in a statement that while hospitals are striving to meet patients’ demand for increased quality, service and technology, they are doing so “in the face of underpayment from governmental payors.”

Joe Kirkpatrick, vice president of health care finance for the Massachusetts Hospital Association, agreed with Deschene and Klessens that the industry faces significant challenges.

“There’s trouble on the horizon,” he said, pointing out that margins declined statewide. Kirkpatrick said proposed changes to federal health-care reimbursement policy could cost Massachusetts hospitals $2.5 billion over five years. (The state’s hospitals recorded about $1 billion in profit in fiscal year 2006, according to an analysis conducted by the Massachusetts Nurses Association.)

In addition to that potential hit, hospitals’ expenses are growing at 8.7 percent annually, while revenue climbs 8.4 percent, Kirkpatrick said. That explains declining margins, and also could lead to a decrease in profits.

However, the nurses association accused the Bay State’s hospitals, most of which are nonprofit organizations, of cashing in on higher revenues while many nurses are out of work. According to the association’s figures, total hospital profits have nearly doubled since 2005.

“To be making profits is just obscene,” said Donna Kelly-Williams, vice president of the association. “We’re struggling at the bedside with lack of staffing to take care of patients.”

Kirkpatrick and local hospital executives said there is a nursing shortage in the state. Medical centers want to hire more staff, they said, but a lack of applicants and rising expenses have combined to keep staffing down.

The region’s only for-profit facility, Nashoba Valley Medical Center in Ayer, will likely be hiring as it conducts more than $50 million in renovations. Owned by Nashville, Tenn.-based Essent Healthcare, Nashoba plans to break ground on a 225,000-square-foot complex on Groton Road in 2008 or 2009.

The hospital has experienced a turnaround since Essent took over in 2003. In fiscal year 2003, Nashoba lost $2.4 million; the very next year, the hospital turned a profit, and in fiscal year 2006 made nearly $1 million.

CFO Tom Whalen said Nashoba should continue to grow, as the former Fort Devens is built out and residents continue to flee high housing prices in the Boston area.

Still, he said, rising expenses and falling reimbursements could hinder Nashoba’s efforts.

“It’s a challenge to basically keep your head above water,” Whalen said.

Other Merrimack Valley hospitals reported mixed results in 2006.

Lowell General Hospital’s operating profits fell from $4.2 million to $3.6 million, but total profits increased; operating margins dipped from 3.0 percent to 2.2 percent. (The state average was 1.9 percent.)

Operating profits at Emerson Hospital in Concord declined from $4.9 million to $3.3 million, although total profits went up slightly; operating margins tumbled from 3.5 percent to 2.2 percent.

Lahey Clinic, the region’s largest and most financially successful hospital, also reported declines in operating margin (8.2 percent to 6.3 percent) and operating profits ($53.6 million to $45.5 million).

While storm clouds may be on the horizon, Kirkpatrick said the fiscal climate has still improved greatly in recent years. Emerson, Lahey, Lowell General and Nashoba all have significantly higher operating margins than they did three years ago — Saints’ margin is also higher, albeit slightly.

Earlier this decade, Kirkpatrick said, the state had a lot of “threatened hospitals.”

“For about three years, we’ve been seeing signs of a resurgence … after a long period of low or negative margins,” he said.

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Copyright (c) 2007, The Sun, Lowell, Mass.

Distributed by McClatchy-Tribune Business News.

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