Chartbook 2005

Trends in the Overall Health Care Market

Chapter 4:Trends in Hospital

Financing

Chartbook 2005

Trends in the Overall Health Care Market

4-2

0%

5%

10%

15%

20%

25%

30%

35%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

Chart 4.1:Percentage of Hospitals with Negative

Total Margins1980 - 2003

Source: The Lewin Group Analysis of the American Hospital Association Annual Survey data, 1980 – 2003, for community hospitals

Chartbook 2005

Trends in the Overall Health Care Market

-6%

-4%

-2%

0%

2%

4%

6%

8%

90 91 92 93 94 95 96 97 98 99 00 01 02 03

4-3

Total Margin

Chart 4.2:Aggregate Total Hospital Margins(1),

Operating Margins(2), and Patient Margins(3)

1990 - 2003

Source: The Lewin Group Analysis of the American Hospital Association Annual Survey data, 1990 - 2003, for community hospitals

(1) Total Hospital Margin is calculated as the difference between total net revenue and total expenses divided by total net revenue(2) Operating Margin is calculated as the difference between operating revenue and total expenses divided by operating revenue(3) Patient Margin is calculated as the difference between net patient revenue and total expenses divided by net patient revenue

Operating Margin

Patient Margin

Chartbook 2005

Trends in the Overall Health Care Market

4-4

-1.0%-0.95%

3.41%

5.11%

3.36%

5.06%

-1%

0%

1%

2%

3%

4%

5%

6%

Total Margin Operating Margin Patient Margin

Source: DATABANK data.

(1) Data represent the experience of 884 hospitals that consistently reported to DATABANK in 2003 and 2004. Data are unweighted and over represent smaller hospitals in western, rural states. A subset of states are not represented in DATABANK. DATABANK is an online database of hospital utilization and financial performance indicators.

Chart 4.3:Hospital Margins Reported to

DATABANK(1) 2003 vs. 2004

2003

2004

Chartbook 2005

Trends in the Overall Health Care Market

4-5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

Chart 4.4:Distribution of Outpatient vs. Inpatient

Revenues1980 - 2003

GrossInpatientRevenue

GrossOutpatientRevenue

Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2003, for community hospitals

Chartbook 2005

Trends in the Overall Health Care Market

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

4-6

Chart 4.5:Annual Change in Hospital Operating

Revenue and Expenses per Adjusted Admission(1)

1981 - 2003

Source: The Lewin Group Analysis of the American Hospital Association Annual Survey data, 1981 - 2003, for community hospitals(1) An aggregate measure of workload reflecting the number of inpatient admissions, plus an estimate of the volume of outpatient services, expressed in units equivalent to an inpatient admission in terms of level of effort

Change in Operating Revenue

Change in Total Expenses

Chartbook 2005

Trends in the Overall Health Care Market

1980 2002 2003

Uncompensated Care(2) – 5.5%

Other Government – 6.1%

Uncompensated Care(2) – 5.1%

Private Payer – 41.8%

Medicare – 34.6%

Medicaid – 9.6%

Non-patient(1) – 2.7% Non-patient(1) – 2.6%

Private Payer – 37.5%

Other Government – 1.6%Medicaid – 14.3%

Medicare – 38.5%

Chart 4.6:Distribution of Hospital Cost by Payer

Type1980, 2002, and 2003

Source: The Lewin Group Analysis of the American Hospital Association Annual Survey data, 1980, 2002, and 2003, for community hospitals

(1) Non-patient represents costs for cafeterias, parking lots, gift shops and other non-patient care operating services and are not attributed to any one payer

(2) Uncompensated care represents bad debt expense, at cost, and charity care

38.4%

13.9%

1.6%

38.2%

5.4%

2.6%

4-7

Chartbook 2005

Trends in the Overall Health Care Market

70%

80%

90%

100%

110%

120%

130%

140%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

4-8

Chart 4.7:Aggregate Hospital Payment-to-Cost

Ratiosfor Private Payers, Medicare, and

Medicaid1980 - 2003

Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1980 – 2003, for community hospitals

(1) Includes Medicaid Disproportionate Share payments

Private Payer

Medicare

Medicaid(1)

Chartbook 2005

Trends in the Overall Health Care Market

4-9

-$14

-$12

-$10

-$8

-$6

-$4

-$2

$0

$2

$4

$6

97 98 99 00 01 02 03

Chart 4.8:Hospital Payment Shortfall Relative to CostsMedicare, Medicaid, and Other Government

1997 - 2003

Source: The Lewin Group analysis of American Hospital Association Annual Survey data, 1997 – 2003, for community hospitals

Other Government

Medicaid

Medicare

Bill

ions

Chartbook 2005

Trends in the Overall Health Care Market

4-10

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03

Chart 4.9:Income from Investments and Other Non-

operating Gains(1)

as a Percentage of Total Net Revenue1980 - 2003

Source: The Lewin Group analysis of the American Hospital Association Annual Survey data, 1980 - 2003, for community hospitals

(1) Non-operating gains include income from non-operating activities, including investments, endowments and extraordinary gains, as well as the value of non-realized gains from investments

Chartbook 2005

Trends in the Overall Health Care Market

4-11

19

6369

61

41

12 10 10 1121

3534

555962

28

73

32

55

26 2837

61

45

93 94 95 96 97 98 99 00 01 02 03 04

Chart 4.10:Number of Bond Rating Upgrades and Downgrades of Non-profit Hospitals

1993 - 2004

Source: Standard & Poor’s, 2005

Chartbook 2005

Trends in the Overall Health Care Market

4-12

Years

7.9 8 8.2 8.4 8.6 8.8 8.9 9.2 9.3 9.2 9.4 9.6 9.8 9.8

0

2

4

6

8

10

12

90 91 92 93 94 95 96 97 98 99 00 01 02 03

Chart 4.11:Median Average Age of Plant

1990 - 2003

Source: CHIPS: The 1994 Almanac of Hospital and Financial Operating Indicators, The 1996-7 Almanac of Hospital and Operating Indicators, and 1998-2003 data from Ingenix: Almanac of Hospital Financial and Operating Indicators 2005

Chartbook 2005

Trends in the Overall Health Care Market

4-13

4.4% 4.3%

3.4%

0%

1%

2%

3%

4%

5%

6%

All Private ServiceIndustries

All Health Services Hospitals

Chart 4.12:Percent Change in Employment Cost Index(1),

All Private Service Industries, All Health Services, and Hospitals

September 2004(2)

Source: Bureau of Labor Statistics, Employment Cost Index, 12 Months Ending September, 2004; www.bls.gov

(1) Total compensation(2) Data is for 12 months ending September 2004; December 2004 data has not been

published as of yet