Hospital Buyer

USA Today reports on hospital profitability trends and a wave of construction not seen for half a century. Hospitals reported an average 5.2% profit margin in 2004. There is still a quarter of them losing money though that number decreased from about a third in recent years. The American Hospital Association does not have full numbers for 2005 yet, but Lisa Goldstein, a senior vice president at credit rating agency Moody’s saw increased margins in the accounts her firm audits. A trend of better hospital profitability started earlier this decade as hospitals gained leverage with insurers, obtained more favorable Medicare reimbursements, increased their prices, and changed their service mix in favor of more expensive and technical services. Still, 80+% of hospitals in the US operate on a non-profit basis, often catering to less profitable patients. In November 2004 Modern Healthcare noted that net profit margins can go up while net profit goes the opposite way.

The new hospitals tend to be located in the suburbs and offer more comfortable amenities such as private rooms with internet access. They are also loaded with new technology, and these trends are reflected in an almost $100 billion bill in the past five years. Capacity decreased by 18,000 beds in three years down to 808,000 beds in 2004 while occupancy rates increased. Yet John Wennberg, director of the Center for the Evaluative Clinical Sciences at Dartmouth Medical School was quoted as saying: “We know from research that does not improve outcomes, but it does drive up costs.” (This center provides interesting benchmarking tools and research findings on the Dartmouth Atlas of Health Care web site.) Paul Ginsburg, an economist with the Center for Studying Health System Change, also asked whether excess capacity will really lead to increased competition and lower health care prices.

January 6, 2006 Related topics: Trends