Shaping New York’s Health Care:
Information, Philanthropy, Policy
H spitalWatch
FEBRUARY 2011
Hospital Watch discusses
trends in use, operations,
and financial performance
of voluntary and municipal
hospitals in New York City.
New York City Hospitals’ Finances
Improve Overall in 2009,
but Many Struggle to Survive
By Steven Fass and Sean Cavanaugh
Back issues of Hospital Watch
are available on the United
Hospital Fund’s website at
www.uhfnyc.org.
D I R E C TO R O F H E A LT H C A R E F I N A N C E
Sean Cavanaugh
S E N I O R F I N A N C I A L A N A LYS T
Steven Fass
S E N I O R P RO G R A M M E R / A N A LYS T
Ewa Wojas
A D M I N I S T R AT I V E A S S I S TA N T
Karen J. Elder
PRESIDENT
In a previous Hospital Watch report,1 we painted
a bleak financial picture of New York City’s
voluntary hospitals. From 2000 through 2006,
the city’s hospitals consistently generated margins
substantially below the national average, and in
five of the seven years the industry had a collective loss from operations (see page 3 for financial
ratio definitions used in this report). In response
to these low margins, hospitals reduced their
investment in capital (buildings, equipment,
and information technology), resulting in a
rapidly aging infrastructure.
Despite citywide growth in inpatient admissions, seven hospitals closed between 2000
2
and 2006, and more than one-third of the
surviving hospitals were in jeopardy, according
to United Hospital Fund’s rating system (see
Appendix A, Methodology). The industry was
divided between hospitals that were financially
stable (led by academic medical centers) and
those that were struggling (primarily small
hospitals and safety net hospitals). The report
concluded that, barring a significant change
in public policy or market conditions, these
trends would continue and more hospitals
would be forced, eventually, to close or
declare bankruptcy.
In this report, covering the period from 2006
through 2009, we find a small improvement in
the financial condition of the city’s hospitals in
the aggregate, but a continuation of the divergent
trends previously described. Six additional hospitals closed during this period (with two more
hospitals closing in 2010), and nearly one-third
3
of those remaining are still in jeopardy.
VO L U M E A N D M A R G I N S :
T H E A G G R E G AT E P I C T U R E
Inpatient volume, often an indicator of financial
performance, remained essentially flat citywide.
This trend, however, is based on the inclusion
of data from hospitals that closed. Discharges
grew collectively at the thirty nonprofit hospitals
that remained open throughout this period and
are included in this report (Figure 1). Admissions
at the surviving hospitals steadily increased,
rising by 7.7 percent from 2002 through 2008,
or an average annual rate of 1.7 percent. Admissions rose 1.0 percent in 2007 and 0.7 percent
in 2008 (2009 data are not yet available).
In part due to this growth in admissions, the
financial condition of the city’s nonprofit hospitals, in the aggregate, improved slightly from 2006
through 2009 (Figure 2). The citywide operating
James R. Tallon, Jr.
S E N I O R V I C E P R E S I D E N T F O R P RO G R A M
David A. Gould
H O S P I TA L WAT C H
United Hospital Fund
Empire State Building
350 Fifth Avenue, 23rd Floor
New York, NY 10118-2300
(212) 494-0700
1 Fass S and S Cavanaugh. December 2008. The deteriorating financial condition of New York City’s nonprofit hospitals, and its effect on capital
investment. New York: United Hospital Fund.
2 The seven hospitals that closed between 2000 and 2006 were the Beth Israel Medical Center Singer Division; Brooklyn Hospital Center
Caledonian Division; Interfaith Medical Center Brooklyn Jewish Division; Our Lady of Mercy Medical Center Florence D’Urso Pavilion; Staten
Island University Hospital Concord Division; and St. Joseph’s Hospital and St. Mary’s Brooklyn Hospital (both part of Saint Vincent Catholic
Medical Centers).
3 The six hospitals that closed between 2007 and 2009 were Cabrini Medical Center, Caritas/Saint Vincent Catholic Medical Centers’ Mary
Immaculate and St. John’s Queens Hospitals, Parkway Hospital, St. Vincent’s Midtown Hospital, and Victory Memorial Hospital. St. Vincent’s
Hospital Manhattan and North General Hospital closed in 2010.
HOSPITAL WATCH FEBRUARY 2011, PAGE 2
Margins
4
S&P 500 Index
margin showed small but gradual
FIGURE 1 TOTAL DISCHARGES, AGGREGATE NEW YORK CITY NONPROFIT
improvement during this period,
HOSPITALS: CUMULATIVE PERCENT CHANGE
rising from 0.2 percent to 1.1
percent, although it remained
10%
below the national median of
8%
4,5
2.0 percent.
6%
The industry’s collective
total margin, which includes
4%
non-operating gains and losses,
2%
reached a high of 4.2 percent
0%
in 2009, but annual performance
-2%
fluctuated with swings in the
2002
2003
2004
2005
2006
2007
2008
financial markets, as tracked
NYC Hospitals, Open
NYC Hospitals, All
by the S&P 500 index (graph
Note: Excludes normal newborn discharges.
line, Figure 2). The financial
markets affect annual performance
because of hospitals’ maintenance
of reserves for defined-benefit
FIGURE 2 AGGREGATE OPERATING MARGINS AT NEW YORK CITY
NONPROFIT HOSPITALS SHOW SMALL IMPROVEMENTS AS
pension plans, malpractice
FINANCIAL MARKETS DRIVE WIDE SWINGS IN TOTAL MARGINS
claims, capital projects, and
6
other purposes.
6%
1,600
4.2%
Starting in 2008, new
4%
2.9%
1,400
accounting procedures (SFAS 158)
1.6%
2%
1.1%
0.4%
0.2%
required hospitals to report
1,200
0%
-0.1%
over- and under-funding of
-2%
1,000
defined-benefit pension plans as
-4%
800
a change in net assets on their
-6%
-5.7%
statement of operations. This
600
-8%
2006
2007
2008
2009
rule had the effect of lowering the
aggregate total margin of New York
Operating margin
Total Margin
City’s nonprofit hospitals by 2.2
Note: Operating margin excludes investment income.
percentage points in 2008 and
raising it by 0.5 percentage points in 2009.
H O S P I TA L R AT I N G S
Liquidity and capital structure indicators
Although collectively hospitals’ financial condition
also showed small improvements, in the aggreimproved in recent years, these gains were not
gate. The current ratio improved from 1.32 to
shared equally. The Fund rates New York’s
1.55 from 2006 through 2009, and debt service
nonprofit hospitals based on expectations about
coverage increased from 2.1 to 3.1. Although
their near-term solvency:
public data are not yet available, hospitals report
• In-jeopardy hospitals typically incur large
that the recession also had a negative effect on
and recurring operating losses and working capital
their payer mix, bad debts, charitable contribudeficits, and have a net asset deficit. These
tions, and grant revenue.
Ingenix. 2010. Almanac of hospital financial and operating indicators, v 2011.
In this Fund report, operating margin excludes realized investment gains (losses) and is, therefore, not consistent with other reporting sources.
With realized investment income included, the 2009 operating margin for New York City’s nonprofit hospitals was 1.3 percent, still below the national
median.
6 Some hospitals also maintain related organizations, such as certain foundations, to provide services or financial support to the hospital. These
organizations are also affected by swings in the financial market, although their gains or losses may not appear on hospitals’ financial statements.
5
HOSPITAL WATCH FEBRUARY 2011, PAGE 3
hospitals require significant posTABLE 1
SELECT PERFORMANCE INDICATORS, 2009 (MEDIAN VALUES)
itive change within the hospital
or the external environment to
Low-risk
At-risk
In-jeopardy
be able to meet their financial
9
obligations.
16
5
Number of Hospitals
• At-risk hospitals have the
-2.5%
0.9%
0.04%
Operating Margin
capacity to meet their financial
0.8
1.8
1.0
Current Ratio
commitments currently, but
8
62
15
Days Cash on Hand
adverse changes internally or
Average Age of Plant
15.1
13.9
18.4
externally would have a high
(years)
likelihood of impairing their
Medicaid and Self-Pay
32%
46%
28%
ability to continue to meet their
Admissions, 2008
financial obligations.
Change in Admissions,
-2%
12%
12%
• Low-risk hospitals do
2002-2008
not usually incur operating
losses and do not have deficits
in working capital
F I N A N C I A L R AT I O D E F I N I T I O N S
or net assets.
Adverse changes
What is Measured
Desired
How Calculated
may hamper but
and Relevant Term
Status
not obstruct their
Profitability
ability to meet
their financial
Total margin
Change in unrestricted net assets / total operating revenue
obligations.
Almost fifty
(Operating revenue–expenses) / operating revenue.
Operating margin
percent of New
Excludes investment gains and losses
York City’s hosLiquidity and Cash Flow
pitals are either
at risk or in jeopCurrent ratio
Current assets / current liabilities
ardy. The number
of in-jeopardy
Cash and cash equivalents / (total expenses–
Days cash on hand
(short-term resources) depreciation expense) / 365
hospitals declined
from thirteen to
Capital Structure
nine from 2006
through 2009 but
Accumulated depreciation / depreciation expense
Average age of plant
only because four
of the thirteen
7
closed. Those nine remaining in-jeopardy
T Y P E S O F H O S P I TA L S
hospitals—predominantly small institutions that
The diverging fortunes of New York City’s hospiprovide a disproportionate share of safety net
tals can be seen even more clearly when we look
services—represent nearly a third of the city’s
at performance within categories of hospitals:
nonprofit hospitals (Table 1).
academic medical centers, large hospitals (more
7 The four in-jeopardy hospitals that closed since the previous Fund report are Cabrini Medical Center, North General Hospital, St. Vincent’s
Midtown Hospital, and Victory Memorial Hospital. Another in-jeopardy hospital, Our Lady of Mercy Medical Center, closed one division, and
its remaining assets were acquired by Montefiore Medical Center. Saint Vincent Catholic Medical Centers, an eight-hospital system that also
closed during this period (two sites remain open under a new corporate structure), was not given a Fund financial rating in 2006 because it was
in bankruptcy at the time of review. In addition, two hospitals were downgraded to in-jeopardy status from at-risk, and one hospital was upgraded
to at-risk from in-jeopardy.
HOSPITAL WATCH FEBRUARY 2011, PAGE 4
than 479 beds), small hospitals
FIGURE 3 OPERATING MARGIN BY TYPE OF HOSPITAL
(fewer than 479 beds), and safety net
hospitals (where Medicaid or self-pay
4%
patients account for more than half
3%
2%
of admissions). A list of hospitals
1%
within each category appears in
0%
Appendix B.
-1%
Operating margins at the four
-2%
academic medical centers grew during
-3%
this period, and their 2009 median
-4%
operating margin, although lower than
-5%
Academic
Large
Small
Safety Net
that of their peers nationally, was many
Medical Centers Hospitals
Hospitals
Hospitals
times greater than in any other class of
2008
2009
2007
2006
8
city hospital (Figure 3). Operating
Note: Operating margin excludes investment income.
margins at large and small hospitals
also had positive trends during this
period, but these margins were still
TABLE 2
SELECT PERFORMANCE INDICATORS, 2009 (MEDIAN VALUES)
quite small. By contrast, operating
Large
Safety Net
Small
margins at safety net hospitals trended
AMCs
Hospitals Hospitals Hospitals
downward; only one safety net hospital
9
4
11
6
Number of Hospitals
had a positive operating margin in
0.4%
3.0%
0.2%
-1.8%
Operating Margin
2009. Of the eight hospitals or hospi1.1
tal divisions that closed between 2006
2.1
1.5
0.8
Current Ratio
and 2010 only one, St. Vincent’s, was
12
75
46
14
Days Cash on Hand
large; the others were small or safety
Average Age of Plant
17.3
13.7
11.8
17.4
net hospitals.
(years)
As Table 2 shows, in 2009 acaMedicaid and Self-Pay
29%
27%
61%
34%
Admissions, 2008
demic medical centers significantly
outperformed other New York City
Change in Admissions,
10%
-5%
16%
-1%
2002-2008
hospitals on most financial performance measures. Safety net hospitals,
as a group, were in severe financial
distress, with deep operating losses, current-year
A previous United Hospital Fund report10
obligations greater than available assets (a low
found that citywide CMI was essentially flat
current ratio), and admissions in decline.
from 1995 through 2002, increasing by just
0.3 percent. During this period, the CMI
CASE MIX TRENDS
for medical admissions declined 4 percent
An important driver of hospital revenue is the serand the CMI for surgical admissions increased
vice intensity of inpatient admissions, as measured
by 5 percent. By contrast, the citywide
by the case mix index (CMI). Hospital profitability
CMI grew by 8.8 percent from 2002 through
has been associated with CMI because high-CMI
2008, with more than one-third of the inadmissions have, on average, higher margins.9
crease (3.6 percent) occurring in 2008 alone
8
Fass S and S Cavanaugh. March 2010. The financial condition of the leading academic medical centers in New York City and the nation.
New York: United Hospital Fund.
9 MedPAC. June 2003. Accounting for variation in hospital financial performance under prospective payment. Report to the Congress: Variation and
innovation in Medicare, chapter 3. MedPAC found that Medicare cases with high CMIs have higher margins, on average. Since many private payers
and Medicaid programs use Medicare DRGs, it is likely this trend applies to those payers as well. New state and federal case mix adjustments have
been implemented to address this imbalance, but it is too early to evaluate the success of these changes.
10 Drop in severity of illness further strains hospital finances. Hospital Watch 16:1 (June 2005).
HOSPITAL WATCH FEBRUARY 2011, PAGE 5
(Figure 4).11 More than half
FIGURE 4 AGGREGATE CHANGE IN CASE MIX INDEX, NEW YORK CITY
of the city’s nonprofit hospitals
NONPROFIT HOSPITALS
had CMI growth greater than
Total
Clinical
Payer Mix
15.0%
5 percent, while only 20 percent
11.9%
of hospitals had declines. CMI
10.0%
9.5%
increases were seen consistently
8.8%
8.8%
8.1%
across both surgical and medical
5.3%
5.1%
5.0%
admissions, and among Medicaid,
Medicare, and commercial
0.4%
0.3%
-4.5%
payers.
0.0%
-0.3%
-1.0%
These increases are the result
of rapid growth in high-CMI
-5.0%
All
Surgery
Medicine Medicare Medicaid Commercial
Admissions
admissions coupled with slow
12
1995 / 2002
2002 / 2008
growth in low-CMI cases.
Note: Excludes newborn, maternity, psychiatric, and physical rehabilitation admissions.
For this analysis, a high-CMI
admission is defined as having a
case weight greater than 1995’s
FIGURE 5 CUMULATIVE PERCENT CHANGE IN ADMISSIONS BY CASE
citywide weighted average CMI
MIX INDEX, NEW YORK CITY NONPROFIT HOSPITALS
of 1.94 (for all services other
Previous UHF Report
50%
than newborn, maternity, psychiatric, and physical rehabilitation).
40%
Because the average includes
30%
a small number of cases with
20%
a very high case weight, highCMI cases actually make up
10%
a minority of total admissions—
0%
26 percent at in-jeopardy hospitals, 28 percent at at-risk
-10%
1995
1997
1999
2002
2004
2006
2008
hospitals, and 34 percent at
High-CMI Admissions
Low-CMI Admissions
Total Admissions
low-risk hospitals.
Note: Excludes newborn, maternity, psychiatric, and physical rehabilitation admissions.
As Figure 5 shows, high- and
low-CMI cases grew at similar
(Figure 6). While low-CMI admissions declined
rates from 1995 through 2002, but high-CMI
at in-jeopardy hospitals (with six of the nine
cases grew much more rapidly after 2002.
having declines in these admissions) they
Admissions with high CMIs grew by an average
increased at at-risk and low-risk hospitals,
annual rate of 4.9 percent from 2002 through
with only one at-risk and four low-risk hospitals
2008, more than three times the growth rate
reporting declines. Despite these changes,
during the prior period.
seven in-jeopardy hospitals still had CMIs
High-CMI admissions increased by more
lower than the citywide average.
than 10 percent at seven of the nine in-jeopardy
CMI can grow both because of new techhospitals, four of the five at-risk hospitals, and
nologies
that allow more intensive procedures
fourteen of the sixteen low-risk hospitals
11 MedPAC. May 27, 2010. Comments on CMS’ proposed rule: Medicare program: Proposed changes to the Hospital Inpatient Prospective
Payment Systems. MedPac believes a large part of the 2008 increase for Medicare cases is related to improved documentation and coding
practices. Medicare’s new system of categorizing patients by diagnosis (MS-DRGs), implemented in 2008, assigns a higher weight to patients
coded with additional diagnoses.
12 Admissions were categorized as high- or low-CMI based on their service intensity weight (SIW) in relation to the 1995 citywide average
(including New York City Health and Hospitals Corporation hospitals, and excluding normal newborn discharges, and maternity, psychiatric,
and physical rehabilitation cases).
HOSPITAL WATCH FEBRUARY 2011, PAGE 6
and treatments and because
FIGURE 6 CHANGE IN ADMISSIONS BY CASE MIX INDEX AND HOSPITAL
of the aging of the population.
FINANCIAL CONDITION
Changes in hospital documen40%
tation and coding practices may
32%
31%
also influence CMI. Medicare’s
30%
22%
implementation of a new patient
20%
classification system, the MS9%
DRG grouper, in October 2007
10%
5%
created an incentive for more
-10%
0%
complete documentation. New
York’s Medicaid program also
-10%
Low-CMI Admissions
High-CMI Admissions
implemented a new grouper, in
2002-2008
2002-2008
December 2009, providing similar
Low-Risk
At-Risk
In-Jeopardy
incentives to improve coding.
Note: Excludes newborn, maternity, psychiatric, and physical rehabilitation admissions.
These coding changes, sometimes
referred to as case mix “creep,” can generate
is not driven solely by a loss of low-CMI
higher CMIs, and therefore higher revenues,
cases to ambulatory settings. In the absence
even if they do not reflect a true increase
of these changes, the financial performance
in severity of illness.
of many hospitals—especially small and
The CMI growth among all types of
safety net hospitals—would have been even
hospitals is surprising, especially since it
worse than described in this report.
APPENDIX A. METHODOLOGY
Data Sources
All financial data are from audited financial
statements. In addition to statistics from
each hospital’s balance sheet and statement of
operations, we rely on comments by the public
auditor and any activities reported in the notes
section that could be evidence of financial
strength or weakness. In order to address
inconsistencies in hospitals’ definitions of
operating and non-operating revenues and
expenses, we adjust reported data to enable
comparability. In addition, extraordinary (nonrecurring) activities (such as the cumulative
effect of a change in an accounting principle
or a gain on sale of property) are excluded.
Utilization statistics are from institutional
cost reports (ICRs), which hospitals submit
annually to the New York State Department
of Health. Although ICRs also contain financial data, unpublished analyses by the United
Hospital Fund found that these financial
statistics can vary significantly from those
found in audited financial statements.
Statewide Planning and Research
Cooperative System (SPARCS) data were
used for the case mix analysis. Admissions for
all years were classified using the New York
State All Payer DRG (AP-DRG) grouper 26.0.
Admissions exclude newborns and maternity,
psychiatric, and physical rehabilitation patients.
To correct under-reporting, SPARCS data on
admissions were compared to those from the
ICR dataset by individual hospital and by
year, and were up-weighted based on any
differences found.
Study Period and Universe
This report used audited financial statements
from 2006 through 2009, hospital institutional
cost reports from 2002 through 2008, and
SPARCS data from 1995 through 2008. These
end points represent the most current year for
which data were available at the time of writing.
HOSPITAL WATCH FEBRUARY 2011, PAGE 7
The analysis included every acute care
nonprofit hospital in New York City at the
time of writing (n=30). The unit of analysis
was the hospital or hospital system, including
any controlled subsidiaries, as organized by
the consolidation of its assets in its publicly
released financial statements. Excluded were
New York City Health and Hospitals Corporation (HHC) hospitals; University Hospital of
Brooklyn, SUNY Downstate Medical Center;
and all specialty and proprietary hospitals.
HHC hospitals were excluded because
HHC prepares one consolidated audited financial statement that includes entities outside the
scope of this report—two specialty hospitals,
nursing homes, diagnostic and treatment
centers, and other health care services.
University Hospital of Brooklyn was excluded
because its financials cannot be isolated from
the State University of New York system. New
York’s specialty hospitals could not be compared
with acute care nonprofit hospitals because
they have different patient services and revenue
sources, and the sole proprietary hospital was
excluded because of the unique financial issues
related to its ownership status.
Rating Process
The United Hospital Fund rating process considers trends in financial ratios and inpatient
utilization relative to local and national statistics.
Significant weight is assigned to evidence of
financial strength and weakness, such as
default or delinquency of an obligation, short-term
borrowing for operating purposes, financial
condition of related organizations, sale of
assets, and compliance with debt covenants.
The opinions of outside organizations—a
hospital-commissioned public auditor,
for example—are also taken into account.
A P P E N D I X B. N E W YO R K C I T Y
N O N P RO F I T H O S P I TA L S , B Y C AT E G O RY
Academic Medical Centers
Montefiore Medical Center
The Mount Sinai Hospital
NewYork-Presbyterian Hospital
NYU Langone Medical Center
Large Hospitals *
Beth Israel Medical Center
Lenox Hill Hospital
The Long Island College Hospital
Long Island Jewish Medical Center
Lutheran Medical Center
Maimonides Medical Center
The New York Hospital Medical Center
of Queens (New York Hospital Queens)
New York Methodist Hospital
Richmond University Medical Center
St. Luke's-Roosevelt Hospital Center
Staten Island University Hospital
Small Hospitals
The Brooklyn Hospital Center
Flushing Hospital Medical Center
Kingsbrook Jewish Medical Center
The New York Community Hospital
New York Downtown Hospital
New York Westchester Square Medical Center
North Shore University Hospital at Forest Hills
(Forest Hills Hospital)
Peninsula Hospital Center
St. John's Episcopal Hospital, South Shore
Safety Net Hospitals **
Bronx-Lebanon Hospital Center
Brookdale University Hospital and Medical Center
Interfaith Medical Center
Jamaica Hospital Medical Center
St. Barnabas Hospital
Wyckoff Heights Medical Center
*Large hospitals had 479 or more licensed beds in 2008—the median number of beds in New York City nonprofit hospitals
that year, excluding academic medical centers and safety net hospitals.
**Safety net hospitals are defined by Medicaid and uninsured patients comprising more than 50 percent of admissions,
other than newborns, in 2008.
HOSPITAL WATCH FEBRUARY 2011, PAGE 8
A P P E N D I X C . B A N K R U P T C I E S A N D C L O S U R E S , 2 0 0 0 TO 2 0 1 0
Hospital
Flushing Hospital Medical Center
St. John’s Episcopal Hospital, South Shore
Bankruptcy
Closure
Filed June 1998;
emerged June 2000
Filed Nov 1999;
emerged Dec 2000
The Brooklyn Hospital Center, Caledonian Division
Closed March 2003
Interfaith Medical Center, Brooklyn Jewish Division
Closed April 2003
Staten Island University Hospital, Concord Division
Closed June 2003
Our Lady of Mercy Medical Center, Florence D’Urso Pavilion
Closed Jan 2004
Saint Vincent Catholic Medical Centers, St. Joseph’s Hospital
Closed Aug 2004
Beth Israel Medical Center, Singer Division
Closed Aug 2004
Saint Vincent Catholic Medical Centers
Filed July 2005;
emerged Sept 2007
Saint Vincent Catholic Medical Centers,
St. Mary’s Brooklyn Hospital
Closed Oct 2005
The Brooklyn Hospital Center
Filed Sept 2005;
emerged Oct 2007
New York Westchester Square Medical Center
Filed Dec 2006
Our Lady of Mercy Medical Center
Filed March 2007
Acquired by Montefiore
Medical Center,
July 2008
St.Vincent’s Midtown Hospital
Closed Aug 2007
Cabrini Medical Center
Closed March 2008
Victory Memorial Hospital
Closed Sept 2008
Parkway Hospital
Closed Sept 2008
Caritas / Saint Vincent Catholic Medical Centers,
Mary Immaculate Hospital
Closed Sept 2009
Caritas / Saint Vincent Catholic Medical Centers,
St. John’s Queens Hospital
Closed Sept 2009
St.Vincent’s Hospital Manhattan
Closed April 2010
North General Hospital
Closed July 2010