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CA Hospital Margins on the Rise

 |  By cclark@healthleadersmedia.com  
   December 20, 2012

An analytic tool launched Wednesday by the nation's largest state hospital database reveals that California hospitals are slowly rebounding from the recession, with total margins rising from just above 3% in FY 2008  to 6% in 2010.

A series of five-year charts from 2006-2010, specifically those reflecting total margin or net income margin, "shows us that in the last couple of years, hospitals made more of a profit, but we're talking small profit,"  says Ty Christensen, health program audit manager for the Office of Statewide Health Planning and Development.

The Sacramento-based agency collects statistics on cost and utilization for the state's 433 acute care hospitals, the largest acute care database in the country.

This particular report is the first in a series to cover a five-year period, and is intended to portray for community leaders and policy makers a baseline picture of hospital financial health during the period at or just before hospitals begin implementation of healthcare reform, Christensen says.

Even though cost pressures stemming from the Patient Protection and Affordable Care Act are now forcing hospitals to rethink their budgets, that might have only just been starting to happen in 2009 and 2010, when the legislation was undergoing heated debate or had just passed a few months earlier, he says.

"Each hospital looks at its operations and realizes the downturn of the market and the economy, and what they need to do. And I know there's a lot of angst about healthcare reform overall, and more of a concern they not get behind and swept under. They are proactively looking to make sure they can take on this new unknown healthcare reform, and position themselves for it."

Christensen adds that the state's financial picture may help hospitals and policy makers in other states understand national trends, but cautioned that California has some extenuating circumstances, largely because its large portion of Kaiser hospitals and health plans, which enroll a significant percentage of the state's insured.

Noteworthy portions of the data:

Operating margin averaged .58% per year from 2006 to 2008, but increased to 1.98% in 2009 and 2.59% in 2010.

Total margin, which includes subsidies and investments, decreased from 6.16% in 2007 to 3.37% in 2008, largely because of loss of investment income during the market downturn. But total margins increased to 5.99% in 2010.

City/county hospitals, which take care of the poor,  provided "significantly" more uncompensated care than other facility types, averaging 23.8% of charges. That increased to 25.5% in 2010. Investor and non-profit hospitals provided about the same level of uncompensated care, about 4.1% and 4.3% of charges, respectively.

Positive net income: The percentage of California hospitals that have a positive net income ranged from investor hospitals at 80% to city/county hospitals at 47.4% in 2010. The state average in 2010 was about 77%, increasing from 67.5% in 2006.

Payments from private managed care health plans were substantially higher than from Medicare or Medi-Cal, the state's Medicaid program. They increased from $3,627 per adjusted day in 2006 to $5,054 per adjusted day in 2010, or by 39%.

Labor costs, including salaries, wages and employee benefits, were substantially higher and increased faster than any other expense category, from $28.1 billion in 2006 to $36.4 billion in 1010, or by 29.5%.

Length of stay over the five-year period decreased by about one-fifth of a day for all payer types, but decreased the most, by nearly a half a day, for Medicare and self-pay or indigent patients.

Medi-Cal patients also had the longest length of stay, 6.22 days, two days more than private, non-Medicare, non-Medicaid third party payers, which had only 4.22-day lengths of stay.

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