A recent report presents a rosy picture of financial health for hospitals in the state, but health networks and health care industry groups argue they’re in much worse shape than the report makes it seem.
Across the state, hospitals’ net patient revenue was $49.9 billion in fiscal year 2021, about 7% more than it was in fiscal year 2020, according to the Pennsylvania Health Care Cost Containment Council’s annual financial analysis.
Locally, Lehigh Valley Health Network had patient revenues of $2.7 billion, while St. Luke’s University Health Network had about $1.9 billion, the report said.
The report appears to show that most hospitals in the state, including those operated by St. Luke’s and LVHN, closed fiscal year 2021 with very healthy operating and total margins, the differences between revenue and expenditures.
The increased margins from 2020 to ‘21 reflected government COVID-19 relief funding and strong performances from investments, said Barry Buckingham, executive director of PHC4.
But LVHN, St. Luke’s and the Hospital and Healthcare Association of Pennsylvania argue these margins are inflated. According to HAP, the COVID relief payments reported in fiscal year 2021 were actually meant to help recover losses in the previous year.
And significant investment gains made because of a market surge in fiscal year 2021, according to HAP, have likely been erased by the more recent market downturn. HAP also said PHC4′s report does not reflect losses incurred by hospital-owned physician practices amid the pandemic. Buckingham said he agreed with HAP on these points.
Thomas Marchozzi, chief financial officer for LVHN, said the margins in PHC4′s report are completely out of step with reality. PHC4′s report show LVH-Schuylkill and Coordinated Health Allentown and Bethlehem had operating margins that ranged from 13% to 40%, but Marchozzi said those numbers are just plain wrong.
“The idea LVH-Schuylkill made a 13.4% operating margin is just ludicrous,” Marchozzi said. “It has a poor payer mix, a shortage of doctors, a decrease in volume and they literally lost money last year and are projected to lose money again this year. Coordinated Health Bethlehem had a 39.92% operating margin? They barely even broke even. The whole reason we took them over in 2019 was because they were losing money.”
Still, all hospitals operated by St. Luke’s and LVHN saw net revenue from patients increase from 2020 to 2021, though amounts varied widely..
Chad Meyerhoefer, a Lehigh University economics professor, said one possible reason for the increase in profits from patients is that the average length of patient stays increased in 2021. According to the report, the increase was from an average stay of 5.4 days to about 5.7 but Meyerhoeffer said even just a few more hours can be quite expensive.
“Even if you’re increasing it by like three or four hours, added up across all hospitals in the state, that’s a lot of money,” Meyerhoefer said.
LVHN made more money from patients overall: Lehigh Valley Hospital-Cedar Crest, LVH-Allentown and LVH-Muhlenberg brought in just under $2.1 billion, more than St. Luke’s Pennsylvania hospitals combined.
However, St. Luke’s saw its patient profits grow at a much faster rate, about 21% among all its Pennsylvania hospitals compared with LVHN’s 10% increase. Some St. Luke’s hospitals saw even greater year-to-year increases in patient revenue: Anderson Campus in Bethlehem Township saw profits increase 30%, and the Lehighton campus brought in $87 million versus $68 million the previous year.
Karen Boskan, a spokesperson for St. Luke’s, said Anderson expanded inpatient medical and surgical units and also added obstetrics services, resulting in a 40% increase in inpatient and observation volumes. Meanwhile, Lehighton saw increases in surgical volumes and outpatient services, leading to its revenue growth.
Though many hospitals and health networks were hit hard by the pandemic, with some completely or nearly ruined, Meyerhoefer said he not surprised so many of LVHN’s and St. Luke’s hospitals had healthy operating and total margins. He said in addition to stimulus provided by the government, many hospitals were able to adapt operations quickly to meet the needs and limitations created by the pandemic.
In an effort to save money during the early days of the pandemic, hospitals furloughed many employees and laid some off.
Another report by PHC4, on the COVID-19 Disaster Emergency, highlights how significant revenue loss was in 2021 for hospitals and health care facilities. Statewide, hospitals lost about about $1.4 billion because of COVID-19-related expenses and loss in revenue streams.
From the beginning of the pandemic through March 2022, statewide losses equaled $7.6 billion, the report calculated. But that does not reflect emergency funding provided under federal or state laws, including those from the CARES Act or the Paycheck Protection Program and Health Care Enhancement Act.
PHC4′s COVID disaster emergency report shows that COVID-19 caused increases in expenses for hospitals and health care facilities related to staffing, viral testing, supplies, equipment, construction and in some cases housing.
Buckingham said one pandemic measure — adjustments to Medicare reimbursement rates for inpatient COVID-19 treatment — likely did not play a role health networks’ increased patient revenue.
Even so, Medicare and medical assistance dollars accounted for significant chunks of revenues at both networks.
LVH-Schuylkill had the largest share of patient revenue from Medicare and medical assistance at 64%. Close behind were St Luke’s-Lehighton (62%) and St. Luke’s-Sacred Heart in Allentown (about 60%).
Boskan attributed those percentages to poverty and a large aging population in the areas served by the Lehighton and Sacred Heart campuses. She said both hospitals also operate relatively large behavioral health programs, which also increase the number of Medicare and medical assistance beneficiaries.
Pennsylvania hospitals lost about $866 million, about 2% of net patient revenue, in fiscal year 2021 because of uncompensated care, which the report defines as bad debt and charity care, a standard that differs from how the health networks’ own criteria. This represented a 4% increase over the previous fiscal year. Most St. Luke’s and LVHN hospitals lost a smaller percentage of patient revenue due to uncompensated care.
However, St. Luke’s-Easton (the former Easton Hospital, in Wilson) lost $1 million, about 4% of its net patient revenue, to uncompensated care. Boskan attributed this to it being the first year the Easton campus was under the St Luke’s umbrella, which resulted in a significant amount of service realignment. Uncompensated care numbers have come down at the hospital, she said, but are still relatively high due to the demographics of the surrounding population.
“Uncompensated care is a significant concern for all hospitals, including St Luke’s,” Boskan said. “We are also of course concerned with the impact that current inflation, the possible recession that some economists have predicted, and the eventual official termination of the COVID-19 public health emergency funding may all have on future uncompensated care.”
Meyerhoefer said uncompensated care was a more significant problem before the Affordable Care Act, when more people were uninsured. He said the recent increase in uncompensated care was likely due to people losing their jobs and their insurance. Though many would have qualified for Medicaid or insurance plans on the state health insurance market, some may have gotten sick while transitioning insurance.
Morning Call reporter Leif Greiss can be reached at 610-679-4028 or [email protected].