Report: N.J. Hospital Margins Show Modest Rebound

Cost-Cutting Strategies Help Stem Financial Slide

PRINCETON, N.J., Nov. 18, 2010 /PRNewswire-USNewswire/ -- New Jersey hospitals were successful in reversing a financial freefall last year, posting a modest increase in the statewide operating margin for year-end 2009.

The statewide average operating margin was 1.7 percent in 2009, compared with 0.2 in year-end 2008. The data is contained in the 2010 Financial Status of New Jersey Hospitals report, produced annually by the New Jersey Hospital Association.

Despite the welcome news for 2009, the outlook remains uncertain for New Jersey hospitals, most of which are nonprofit. The state's hospitals face more than $4 billion in Medicare cuts over the next decade under national healthcare reform, and Moody's Investor Services released a new report this week with a negative outlook for New Jersey's nonprofit hospitals.

The modest gains seen in 2009 were attributed in large part to hospitals' efforts to reduce costs through layoffs and other measures.

A January 2010 survey showed that nearly half of the state's hospitals had eliminated jobs in the last two years, one-third had frozen employee wages and about 25 percent had eliminated some services or programs.

"New Jersey hospitals have taken some very difficult but decisive actions to counteract the effects of the recession and other financial pressures," said NJHA President and CEO Betsy Ryan. "Hospital closures and job cuts aren't welcome news for any community but they're a necessary reality for New Jersey hospitals."

In the past five years, 10 New Jersey hospitals have closed. And despite the overall fiscal improvement, about one-third of the state's remaining 73 acute care hospitals posted losses at the end of 2009.

NJHA economic analysts said it's too early to say whether hospitals can sustain the improvement or if 2009 was just a one-time turnaround. In addition to the deep federal funding cuts under healthcare reform, Moody's cited several factors that continue to hobble the state's hospitals. They include a very competitive marketplace, reduced commercial and governmental reimbursement and declining patient volumes.

New Jersey hospital operating margins traditionally have lagged 2 to 3 percent behind hospital margins nationwide, said Sean Hopkins, NJHA's senior vice president of health economics. Final 2009 operating margins for the nation's hospitals are not yet available, but the American Hospital Association reports that U.S. hospitals posted an average operating margin of 3.3 percent in 2008. New Jersey's average margin was 0.2 percent.

"While we certainly enjoy this break in the clouds, the storm hasn't passed for New Jersey hospitals," said Hopkins. "New Jersey hospitals still must contend with a harsh marketplace and poor reimbursement – along with the looming federal cuts and tremendous uncertainty under healthcare reform."

SOURCE New Jersey Hospital Association