The Fragile State of Hospital Finances
For America’s hospitals, the bottom line supports our top priority: providing patients the
right care, at the right time, in the right place, and doing it on demand, 24 hours a day,
seven days a week. But that bottom line is increasingly threatened – at a time when the
challenges facing hospitals call for investments not cutbacks. These challenges
include:
•
Opportunities to improve quality and patient safety through investments in
information technology.
•
Continual advances in medicine that open new possibilities for America’s
growing and aging population even as they push up demand for care and the
costs of providing that care.
•
Worker shortages that will reach crisis proportions in the coming decades
unless we invest in our future workforce now.
•
Lack of staff and space to meet growing demand leading to emergency
department overcrowding and ambulance diversion.
•
The need to be prepared for mass casualty events with staff, equipment and
training.
•
A increasing burden of chronic disease in our population, including
diabetes, heart disease and cancer that will require new approaches to manage
care delivery.
But the ability to meet these challenges is
compromised by the significant financial pressures
facing hospitals.
Percent of Hospitals with Negative Margins
2003
Sixty percent of
hospitals lose money
providing patient
care; one-third lose
money overall.
Patient Care
Margin
60%
Operating
Margin
36%
Total Margin
30%
Source: AHA Annual Survey
Total, Operating and Patient Care Margins
1997 (pre-BBA) vs 2003
6.7%
Hospital total
margins are down
34 percent from preBalanced Budget Act
levels.
4.8%
4.0%
3.3%
1997 2003
Total Margin
Source: AHA Annual Survey
The Fragile State of Hospital Finances
1997 2003
Operating Margin
-1.7%
-2.8%
1997 2003
Patient Care Margin
2
Percent of Gross Revenues by Payer
2003
Other
1.6%
Since they cover
more than half of
care provided,
Medicare and
Medicaid drive
hospital financial
performance.
Private
Pay
43.7%
Medicare
40.4%
Medicaid
14.4%
Source: AHA Annual Survey
Percent of Hospitals Losing Money
on Medicare and Medicaid
2003
The majority of
hospitals lose money
treating Medicare and
Medicaid patients.
Medicare
59%
Medicaid
61%
Source: AHA Annual Survey
The Fragile State of Hospital Finances
3
Payment Relative to Cost for
Medicare and Medicaid
1997 - 2003
110%
Payment Equal to Cost
Payment as a
Percent of Cost
Overall, Medicare and
Medicaid pay less
than the cost of care
provided to their
beneficiaries.
100%
Medicare
Medicaid
90%
80%
1997
1998
1999
2000
2001
2002
2003
Source: AHA Annual Survey
Hospital Payment Shortfall Relative to Costs
Medicare, Medicaid and Other Government
1997 - 2003 (in billions of dollars)
$6
1997
1998
1999
2000
2001
2002
2003
$4
$2
Billions of Dollars
Growing government
shortfalls are
staggering and
jeopardize the
financial health of
hospitals…
$0
-$2
4.3
-1.6
-0.7
2.3
-0.1
-1.4
-1.9
-0.6
-0.4
-$4
-1.4
-2.6
-0.5
-2.4
-3.4
-2.1
-0.7
-$6
-2.3
-8.1
Medicare
-5.0
Medicaid
-0.6
-$8
-$10
-$12
-$14
Total 2003 Government
Shortfall of $14 Billion
-0.5
Other Gov’t
-$16
Source: AHA Annual Survey
The Fragile State of Hospital Finances
4
Aggregate Hospital Payment-to-cost Ratios
for Private Payers, Medicare and Medicaid
1980 - 2003
…putting pressure
on the private sector
to make up the
difference.
140%
Private Payer
120%
Medicare
100%
80%
Medicaid
02
00
98
96
94
92
90
88
86
84
82
80
60%
Source: AHA Annual Survey
These financial pressures make it difficult for
hospitals to make critical investments and keep
up with the cost of caring.
The Fragile State of Hospital Finances
5
Estimated Cost of Computerized Physician
Order Entry for a 500-Bed Hospital
(in millions of dollars)
The information
technology to
promote quality and
patient safety costs
millions of dollars.
One Time
Costs
$7.9 Million
Capital Costs
(Hardware,
Software, etc.)
$4.8
Operating
Costs (Project
Management,
Training, etc.)
Annual
Operating
Costs
$3.0
$1.3
Millions of Dollars
Source: First Consulting Group
U.S. Sales of Taxus Drug Eluting Stents
(in billions of dollars)
$2.2
$2.0
$1.9
$1.8
Billions of Dollars
Advances in
medicine offer new
possibilities, but add
billions to the
nation’s cost of
caring.
$1.6
$1.6
$1.4
$1.2
$1.0
$0.8
$0.6
$0.4
$0.2
$0.2
$0.0
2003
2004
2005 Projected
Source: Boston Scientific. Note Taxus represents an estimated 65% of U.S. drug eluting stent sales.
The Fragile State of Hospital Finances
6
Supply vs. Demand for Registered Nurses
2000 - 2020
3,000
2,800
Demand
FTEs (in thousands)
Hospitals need to
invest in workforce
development to
ensure we have
enough caregivers to
meet the future
needs of patients.
2,600
Shortage
of 800,000
nurses by 2020
2,400
2,200
2,000
Supply
1,800
1,600
2000
2004
2008
2012
2016
2020
Source: Bureau of Health Professions, National Center for Health
Workforce Analysis, Projected Supply, Demand, and Shortages of
Registered Nurses: 2000 - 2020, released July 2002
Cost per Metropolitan Hospital of Selected
Upgrades for Disaster Readiness
Disaster readiness
requires staff,
equipment and
training.
Surveillance and
Reporting
Pharmaceuticals
and Supplies
Facility
Improvement
$750,000
$600,000
$575,000
Personal
Protective
Equipment
$505,000
Training and
Drills
$500,000
Source: “Hospital Resources for Disaster Readiness,” AHA, 2001
The Fragile State of Hospital Finances
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Percent of Medicare Expenditures
by Number of Chronic Conditions
Investment in chronic
care management
will be the key to
controlling future
health care costs.
0 Chronic
Conditions
1%
1 Chronic
Condition
3%
2 Chronic
Conditions
6%
3 Chronic
Conditions
10%
5 or More
Chronic
Conditions
4 Chronic
Conditions
68%
12%
Source: Partnership for Solutions, Medicare Expenditure Panel Survey, 2001, Chronic
Conditions: Making the Case for Ongoing Care, September 2004.
Inpatient Admissions and Outpatient Visits
1990 - 2003
35
600
500
Outpatient Visits
33
450
400
32
350
Inpatient Admissions
31
300
250
30
200
29
Outpatient Visits
(millions)
550
34
Admissions
(millions)
Meanwhile the
demand for care –
and the staff and
facilities to provide
that care – continue
to grow.
150
100
28
90
91
92
93
94
95
96
97
98
99
00
01
02
03
Source: AHA Annual Survey
The Fragile State of Hospital Finances
8
For hospitals, today is a time for
investment – not cutbacks.
Critical investments are needed to support:
•
Information technology
•
Advances in medicine
•
Disaster readiness
•
Workforce development
•
Chronic care management
•
Rising demand for care
The Fragile State of Hospital Finances
9