Hospital Finances Show Troubling Trends
Nearly half of the state's hospitals - 47 percent - posted overall losses at the end of 2007, according to new audited financial data contained in the 2008 edition of the New Jersey Hospital Association's Financial Status of New Jersey Hospitals report.
The data shows that New Jersey's hospital industry was on shaky financial ground long before the recent economic meltdown.
New Jersey hospitals reported a dramatic decrease in hospital total margins in 2007, which include income from restricted and non-operating funds such as grants, endowments and investments. The statewide average total margin dropped from 3.1 percent in 2006 to 0.9 percent for 2007 - the lowest it has been since 2002. The 2007 data did reflect a modest increase in year-end operating margins, from 0.6 percent in 2006 to 1.3 percent in 2007. However, the 2007 figure constitutes the 11th consecutive year that New Jersey hospital operating margins have been less than 2 percent.
Compiled from audited financial data submitted by acute care and specialty hospitals and health systems statewide, the report shows total 2007 hospital revenues of $18.263 billion and total expenses of $18.026 billion. The resulting $237 million gain represents a 1.3 percent operating margin, up from 0.6 percent posted at year-end 2006. However, losses from non-operating funds of $70.5 million lowered the total income to $167 million, for an overall margin of only 0.9 percent.
In the same year, three New Jersey acute care hospitals closed and five filed for bankruptcy. "This data underscores the longstanding challenges New Jersey hospitals face in remaining financially sound in the face of insufficient reimbursement from Medicare, Medicaid and the state charity care program," said NJHA President and CEO Betsy Ryan. "It's truly troubling to think that this is the foundation from which our healthcare facilities entered our new economic struggles. A serious situation is rapidly turning critical."
In another key finding, the 2007 data shows that the average age of hospitals' facilities - known as the "age of plant" indicator - remains relatively unchanged at 11.57 years for 2007. That figure has increased 12 percent since 2003, signaling a slowdown in capital improvements as hospitals cling to their cash reserves. The state's Commission on Rationalizing Health Care Resources has reported that New Jersey's hospital facilities are on average 30 percent older than the national average.
According to Sean Hopkins, senior vice president of health economics for NJHA, the steep decrease in 2007 total margins leaves hospitals with little means to increase staff, improve facilities or purchase new equipment, which could impact quality of care and access.
"Many of New Jersey's hospitals sustained a loss in their 2007 margins, and with the current healthcare climate, hospitals will have to look for new ways to sustain themselves. Additional hospital closures are a very real prospect in the wake of aging plants, reduced revenues and - in this economy - a growing number of individuals who are losing healthcare insurance coverage," said Hopkins.
Based in Princeton, NJHA has been providing its 115 members with advocacy, information, research and education since 1918.