Hospitals in the tri-state region continue to experience more financial struggles than the rest of the country as high expenses and uncompensated care weigh on their bottom lines, new data shows.
Hospitals in New York, New Jersey and Connecticut had a median operating margin of 2.7% this year through the month of November, according to recent data from about 60 hospitals released by the Chicago-based consulting firm Kaufman Hall.
Profits declined slightly from the previous month as hospitals experienced a drop in patient volumes and a rise in expenses, said Erik Swanson, senior vice president of data and analytics at Kaufman Hall. Hospitals in the tri-state area still performed worse financially than their peers across the country, with the nationwide median operating margin totaling 4.4%, the data shows.
Local hospitals’ profitability has lagged behind other parts of the country for months because labor is more expensive and hospitals have more competition. In addition to persistent labor shortages that have created financial challenges for hospitals, recent declines in patient volume, rising expenses for fixed costs like rent and utilities and an uptick in uncompensated care have hampered tri-state hospitals’ ability to catch up.
Patient days, which measures hospitals’ daily census, declined slightly from the previous year, the data shows. A decline in patient volume typically leads to fewer procedures and lower expenses, but a 4% increase in non-labor expenses – which can include drugs, medication, maintenance and rent – continued to drag down hospitals’ bottom lines at the end of last year, Swanson said.
“The price of many goods and supplies has risen,” Swanson said. “When volumes drop, those costs do not necessarily drop as well.”
Local hospitals have also struggled with rising costs related to uncompensated care, Swanson said. Costs related to charity care and bad debt – which includes procedures that hospitals have already provided yet cannot collect payment for – rose by more than 30% from the previous year in November, according to the data.
Swanson said that higher hospital costs related to charity care and bad debt may reflect overall employment trends at the end of the year, as people switch jobs and insurance which can lead to higher out-of-pocket costs. But it also reflects the challenges patients face to afford their health care, as more patients default on their bills and hospitals are left on the hook for payment.
“Affordability is a big, big part of this,” Swanson said, noting that hospitals in New York have experienced larger increases in charity care and bad debt payments as a portion of their overall revenue.
As hospitals continue to contend with everyday operating challenges, they are also preparing for policy changes at the federal level. The incoming Donald Trump administration is expected to present even further financial challenges for hospitals, with leaders bracing for cuts to large-scale programs such as Medicare and Medicaid. Swanson said that health care organizations will likely continue to advocate for payment reform, including through negotiations with insurers, as well as government-funded direct payment programs to subsidize expensive budget items such as labor.
