Region’s hospitals battle for healthy margins

Maintaining fiscally sound hospitals continues to be a battle for hospital administrators who have seen expenses increase and payments decrease dramatically over the past several years.

For example, in the past four years, payroll and employee benefits for Colorado’s hospitals increased 33.7 percent, bad debt jumped more than 71.1 percent and the cost of supplies and pharmaceuticals is skyrocketing.

While national experts recommend that hospitals maintain a profit margin of 6 percent to maintain and update physical structures, purchase new technology, provide new programs and services and reduce outstanding debt, many of Northern Colorado’s hospitals missed the mark in 2001.

“There can be a number of reasons for a hospital to have a different margin than the 6 percent baseline,´ said Peg O’Keefe, spokeswoman for the Colorado Health and Hospital Association, which collects statewide data on hospitals. “Anticipating needs or responding to needs in the community can make it go up or down,” she said. “But we do worry about hospitals whose margin remains below 3 percent for an extended period of time.”

In 2001, Colorado hospitals provided more than $3.1 billion in care not covered by Medicaid and Medicare, or attributable to charity care and bad debt, according to the hospital association’s most recent Financial and Utilization report.

As a result, hospital underfunding increased 17.4 percent from 2000 and has escalated 83 percent over the last four years.

Across the state the average profit margin was 10.5 percent in 2001, but rural hospitals fared the worst with 22 reporting losses in 2001. East Morgan County Hospital in Brush, which is operated by Phoenix-based Banner Health Systems, reported a 6.7 percent loss, even worse than the previous year’s negative 6.1 percent.

Thomas Boudreau, regional vice president of finance for Banner, said although the hospital has a long history of losing money, Banner continues to maintain a presence in Brush.

“It’s our commitment to the community,” he said. “If it weren’t for the clinic employing physicians, you wouldn’t have health care there.”

One saving grace for the 15-bed hospital is its recent designation as a Critical Access Hospital, which is a federal classification for rural hospitals that increases Medicare reimbursements. Boudreau said he anticipates the designation will improve the hospital’s bottom line in 2002.

It certainly helped Estes Park Medical Center, which saw a dramatic turnaround in its profit margin, going from a negative 9.4 percent in 2000 to 7.6 percent in the black in 2001.

The hospital earned the Critical Access designation on June 1, 2001, which CEO Tim Bishop said increased Medicare reimbursement at least $300,000 for the remainder of the year. Another major boost to the hospital’s bottom line came from the community, which approved a mill levy increase in 2000 that provided an additional $900,000 for the hospital’s 2001 budget.

“Those are the two main initiatives taken on by our board of directors and administrative team to lend some stability to our financial future,” Bishop said.

While none of the region’s hospitals associated with Banner reached the recommended 6 percent profit, Loveland’s McKee Medical Center saw an improvement in its total margin from 4.3 percent in 2000 to 4.9 percent in 2001. Banner’s Sterling operation dropped eight-tenths of a percent to 4.8 percent profit in 2001.

Greeley’s Banner-operated North Colorado Medical Center saw a 1 percent decrease in its profit margin, dipping to 2 percent in 2001. CFO Bill Munson attributes the performance to a number of uncontrollable factors including a year-end spike in professional liability insurance, and a large percentage of indigent and under-insured patients living in the hospital’s service area.

Still, Munson said the rental agreement the hospital maintains with Banner cost $4.8 million in 2001.

“If you add that number back in, the margin would be 4.5 percent in 2001 and 5.4 percent for the previous year,” he said.

Additionally, 2001 was an investment year for the hospital, which improved and added services in its burn center, inpatient rehabilitation facility and cardiovascular center in addition to hiring several specialist physicians. That investment, Munson said, decreases profit in the short-term but should pay off in future years.

That theory is paying off for Longmont United Hospital, which improved its margin from 4.1 percent in 2000 to 8.1 percent in 2001.

“I’d say it’s mostly attributable to population growth and the hospital’s adding services,´ said CEO Mitch Carson. “Where people previously had to go out of town for certain services, we can now provide it here,” he said.

The hospital added radiation, oncology and cancer services, and expanded outpatient testing and inpatient surgery capabilities.

“Where people previously had to go out of town for certain services, we can now provide it here,” he said. The hospital also renegotiated contracts with managed-care companies, developed tighter bidding processes for purchases and further reduced overhead by combining some management positions.

“Our margins will be less in 2002,” Carson said, “but they’ll still be above the 6 percent level.”

In Fort Collins, Poudre Valley Hospital improved its margin to 8.4 percent in 2001, up from 7.5 percent in 2000.

“There’s about 7,000 cost-cutting initiatives we’ve taken,´ said CEO Rulon Stacey.

A big portion of the improvement comes from borrowed funds used to construct the Harmony campus, Stacey said, as well as a population boom bringing more people to the facility. “We’re attracting patients from western Nebraska and southern Wyoming, too,” Stacey said.

Copies of the CHA’s report are available at all public and academic libraries across the state or can be purchased from the association for $200.

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