News | November 28, 2007

New Jersey Hospitals Show Declined Operating Margin in 2006

November 29, 2007 - New Jersey’s hospitals suffered a 1 percent decrease in year-end operating margins for 2006 and hospital profit margins have been at less than 2 percent for the last two years, according to the latest edition of the New Jersey Hospital Association’s 2007 Financial Status of New Jersey Hospitals Report.

Compiled from audited financial data submitted by acute care and specialty hospitals and health systems statewide, the report shows total 2006 hospital revenues of $17.1 billion and total expenses of $17 billion. The resulting $106 million gain represents a 0.6 percent operating margin, down from 1.6 percent posted at year-end 2005.

This consolidated financial analysis represents more than 93 percent of all acute care sites as well as specialized or rehabilitation hospitals.

“Insufficient reimbursement from Medicare, Medicaid and the state charity care program are some of the major factors contributing to New Jersey’s low operating margins and low cash levels,” said NJHA President Gary Carter. “In fact, more than 40 percent of our hospitals are operating in the red, and that number will continue to increase unless some major changes are made in charity care funding, along with adequate payments from other key payers.”

Other key indicators from the 2007 Financial Status of New Jersey Hospitals includes the average number of days a patient’s bill was in accounts receivable was 48 days, down slightly from 49 days last year. The average number of days hospitals had cash on hand to operate if all other funding sources stopped was 45.1, relatively unchanged from the 45.3 days calculated for 2005. The average time it took a hospital to pay its bills went from 71.6 days in 2005 to 74 days in 2006.

According to Sean Hopkins, senior vice president of health economics for NJHA, the 1 percent decrease in 2006 margins leaves hospitals with little means to increase staff, improve facilities or purchase new equipment, which could impact quality of care and access.

“Many of New Jersey’s hospitals sustained a loss in their 2006 operating margins, and with the current healthcare climate, hospitals will have to look for new ways to sustain themselves. In the wake of aging plants and reduced revenues, additional closures are a very real prospect,” Hopkins said.

Based in Princeton, NJHA has been providing its 113 members with advocacy, information, research and education since 1918.

For more information: www.njha.com

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