Report Finds NJ Hospitals Face Multiple Financial Pressures

Andrew Kitchenman | January 8, 2013 | Health Care
Increase in 2011 operating margins offset by pension payments, stock market decline

New Jersey’s hospitals are still fiscally healthy, but their financial pulse isn’t as strong as it was a year ago.

While state’s hospitals saw increased operating margins in 2011, those gains were offset in large part by required pension contributions and declines in the stock market, according to a recent report by the New Jersey Hospital Association.

The annual Financial Status of New Jersey Hospitals Report found that the operating margin for hospitals increased to 3 percent in 2011 from 2.3 percent in 2010.

However, non-operating expenses caused total margins to fall from 4.7 percent in 2010 to 0.3 percent in 2011, once contributions to worker pensions and a drop in investment income were factored in.

The final numbers for 2012 won’t be available until later this year.

“New Jersey hospitals continue to face a delicate balancing act between their mission and their margins,” said Elizabeth A. Ryan, association president and CEO, in a statement. “Their efforts to deliver high quality healthcare services while improving the efficiency of their operations are reflected in an improved operating margin.”

Association officials said the increased margins were also the result of aggressive efforts to reduce costs and increase collaborations with doctors and post-acute providers, moves prompted by reductions in Medicare, Medicaid and the state charity care program.

Hospitals face additional cuts in government payments under a law passed by Congress last week. The measure reduces reimbursements to hospitals in lieu of cuts that had been planned in Medicare payments to doctors.

The association estimated that the reduction in Medicare reimbursements would reduce payments to New Jersey hospitals by $83.2 million in the first 12 months.

In 2011, New Jersey hospitals had $50.5 million in total gains and $585.9 million in net operating income, so that $83.2 million drop in revenues represents a significant financial blow.

The report also found that different categories of hospitals are in different financial situations.

For example, operating margins were stronger at suburban hospitals, with an average 3.2-percent margin, compared with rural hospitals, at 1.7 percent, and inner-city hospitals, where the average margin was 0.8 percent.

In addition, acute-care hospitals had higher operating margins than non-acute care facilities.

While the hospitals’ total margins were barely positive, they were much improved from the recent low of 2008, when total margins were minus-14.1 percent.

The 0.3 percent total margin was lower than the operating margin for hospitals in the rest of the Northeast, where it was 2.8 percent, and the national median of 3.2 percent.

The hospitals’ financial situation worsened over the past year in other ways. The number of days of expenses that the hospitals would be able to cover with the amount of money that they have accumulated, or cash on hand, dropped from 53.8 days in 2010 to 49.2 days in 2011, while the average time it takes to be paid for services increased from 73.1 days to 78.5 days, according to the report. The annual return on hospitals’ equity dropped from 12.6 percent in 2010 to 1.4 percent in 2011.

Sean Hopkins, NJHA senior vice president of health economics, noted that these financial pressures are affecting an industry that is important to the state’s economy, adding that hospitals are usually the largest employer in their communities.

“Our hospitals will have to remain focused and creative in their efforts to continue to deliver high quality care in a cost-effective manner,” Hopkins said in a statement. “The pressure needle on hospital revenues is still pointing down for the foreseeable future.”