Profits shrink in '06 for local hospitals
Statewide health care providers reach $1B profit mark
Does more than $1 billion in profit and an 8.4 percent increase in total revenue over last year mean good news or bad news for state hospitals?
It depends on whom you ask and where you live.
Collectively, state hospitals brought in $1,010,578,000 in reported profits in 2006, up almost $100 million from 2005, according to the Massachusetts Department of Health Care Finance and Policy.
But locally, it wasn't such a banner year. Hospitals in the Worcester region were profitable in 2006, but saw their profits shrink by about $20 million.
According to the MHA, hospital expenses rose 8.7 percent last year, shrinking already thin operating margins and making investment in new equipment, technology and infrastructure upgrades difficult.
"Statewide, we found expenses are climbing," said Joe Kirkpatrick, vice president of health care finance and managed care for the MHA. "One of the big things that has affected central Massachusetts are labor settlements. Labor expenses went up 9.4 percent, which brings up total expenses."
The 12 area hospitals in Central Massachusetts and MetroWest reported collective profits of $89.3 million in 2006, down from $109 million in 2005. A large portion of that reduction, however, can be attributed to UMass Memorial Medical Center's $34 million decline in profits from 2005 to 2006. The Worcester-based hospital still managed to post $45.4 million in profit in 2006, the fourth-highest in the state.
St. Vincent Hospital in Worcester recorded $17.4 million in profits in 2006, up $13.2 million from the $4.2 million made in 2005.
Spending checks
Most of the smaller, community-oriented hospitals in the region reported modest gains over 2005, thanks to efficient management and effective marketing, according to area hospital executives.
"You have to make good decisions about how you spend your money," said Richard Mangion, president and CEO of Harrington Memorial Hospital in Southbridge. "There's only so much money to go around, and there are just some things that shouldn't be done in a community hospital, because the economies of scale don't exist. On the other hand, you have to be dedicated to community service, and if (the community) needs it, you obviously have to try to do it. But you have to balance that with the consequences of what you're trying to do."
Harrington Memorial reported a $6.8 million profit in 2006, up $3.2 million from 2005.
Faced with federal and state payment rates that have failed to increase at the same rate as expenses, smaller hospitals are forced to drive up patient volume at their facilities to make up the difference, said Dean Fleming, CFO of Athol Memorial Hospital.
"So far, we've been squeezing a lot of success out of not much of an increase in business," Fleming said. "Moving forward, we need to get more and more patients in the door. We need more physicians in the area to help do that, and we're making a strong bid to do that."
Athol Memorial Hospital made $575,000 in 2006, a slight increase over the $439,000 profit reported in 2005.
In order for all hospitals, big and small, to continue to grow, Kirkpatrick said, they will need to keep a watchful eye on their expenses and operating margins.
"For this fiscal year, I think the biggest issue here is how the hospitals can control their expenses, which will determine how well they'll do," Kirkpatrick said.
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