Maryland hospitals, as a group, lost money on operations in the quarter that ended June 30 -- the first time the hospitals have posted a net loss for a quarter in five years, according to figures released yesterday by the Maryland Hospital Association.
"We're headed quickly in the wrong direction," said Nancy Fiedler, MHA's executive vice president.
"The worst part is that this financial decline is expected to continue," said Calvin Pierson, MHA president. "That will translate into still more belt-tightening by hospitals, with cutbacks in services, in community outreach and in staffing."
He attributed the eroding margins to lower Medicaid rates, increasing payment denials by insurers and to rate reductions ordered by state regulators. The quarter reflects the first in which the rate-setting Health Services Cost Review Commission ordered most hospitals to reduce their average charge per case by 1 percent.
However, Robert Murray, executive director of the rate-setting panel, said, "The commission still believes that Maryland's cost is high relative to the nation, and that implies that hospitals can get more efficient."
The cost of an average hospital stay in Maryland has gone from 12 percent below the national average in 1992 to 8 percent above the national average now, prompting the commission's squeeze on rates.
Murray said he thought hospitals could manage to reduce costs to meet the new rate constraints. The loss in the quarter, he said, was generated because "revenues are not going up as fast as they did before, but costs are not coming down."
John Marzano, spokesman for MedStar Health, which operates five hospitals in Maryland and two in the District of Columbia, said his system is developing a plan to cut costs, but that it would take some time to put into action.
"Probably over the next two to three years, we will identify savings, implement them and move forward," he said. "You can't make systemic changes in a short time in this business. There's got to be a process to get from Point A to Point B."
Maintaining quality while cutting costs was "a tall order," he added.
MHA did not release numbers for individual hospitals; it said those figures were still being audited. However, the association said that preliminary figures indicate that 21 of the state's 50 acute-care hospitals were in the red for the quarter.
The hardest-hit are the urban hospitals, Fiedler said. Already this year, two Baltimore facilities, Liberty Medical Center and New Children's Hospital, have closed as acute hospitals, and a third, Church Hospital, is to close next month.
Also, MHA said:
While hospitals lost on average 0.3 percent of revenue on operations, the hospitals as a group were in the black when investment and other income was included, although the margin was just 0.9 percent.
That total margin contrasted with a 3.3 percent total margin in the corresponding quarter last year, and 7 percent in the corresponding period in 1997.
In terms of total margin, 11 acute hospitals were in the red for the quarter.
For the 12 months that ended June 30, which matches the fiscal year for most Maryland hospitals, the operating margin was 1.7 percent. Margins for Maryland hospitals historically have been in the range of 2 percent to 4 percent, but jumped to as high as 6.5 percent in the mid-1990s.