Report: N.J. Hospital Margins Show Slight Increase

Increase Due to Aggressive Cost-Reduction Measures

PRINCETON, N.J., Nov. 28, 2011 /PRNewswire-USNewswire/ -- New Jersey hospitals saw a slight increase in their statewide operating margins for year-end 2010, but despite the uptick in the average margin, 30 percent of the state's hospitals still posted operating losses at the end of 2010.

The statewide average operating margin was 2.3 percent in 2010, compared with 1.7 in year-end 2009. The data is contained in the 2011 Financial Status of New Jersey Hospitals report, produced annually by the New Jersey Hospital Association.

According to the report, the modest gains seen last year were largely attributed to hospitals' implementation of aggressive cost-reduction strategies. In response to the economic downturn, hospitals reported layoffs, select service reductions, hiring and wage freezes and the elimination of unfilled budgeted positions in 2008 and 2009. In addition, large capital projects were put on hold, a delay that is reflected by the "average age of plant" in New Jersey – a measure of the age of the state's hospital structures. New Jersey's average age of plant is 11.8 years, approximately 20 percent higher than the national average of 9.9.

All told, N.J. hospitals' total expenses increased just 1.3 percent in 2010. The national average was 4 percent, according to a recent economic outlook report from Moody's Investor Services. In addition, data from the U.S. Bureau of Labor Statistics shows that the consumer price index - a measure of inflation - for hospital services increased 7.8 percent nationally from 2009 to 2010.

"New Jersey hospitals have worked extremely hard to make their operations more efficient and to reduce expenses without compromising quality of care," said NJHA President and CEO Betsy Ryan.

Health economists fear the improvement in hospitals' financial standing may be short-lived. New Jersey's hospitals still confront $4.5 billion in Medicare reimbursement cuts over the next decade under the Affordable Care Act. And the continued struggle in Washington, D.C., to reduce the nation's debt load could also bring deep cuts in federal reimbursement to hospitals. The bipartisan super committee's recent failure to reach consensus on debt reduction strategies now sets in motion a 2 percent across-the-board cut in Medicare payments to providers, beginning in 2013. That cut would cost New Jersey's healthcare community about $130 million in 2013 alone and $1.3 billion over the next decade.

"Despite the slight improvement in operating margins, New Jersey hospitals still must contend with poor reimbursement, continued loss of revenue through federal funding cuts and tremendous uncertainty under healthcare reform and debt reduction," said Sean Hopkins, senior vice president of health economics for NJHA.

SOURCE New Jersey Hospital Association