Connecticut’s hospitals operated with a collective deficit during the last fiscal year as investment income plummeted $330 million.
According to an industry report, the combined margin for the state’s 29 acute care hospitals in fiscal 2007-2008 dropped to negative 1.1 percent — a $404 million year-over-year drop — mostly because of massive losses on investments, which have historically helped hospitals cover operating costs. Connecticut hospitals posted an investment loss for the first time ever.
The gap between how much Connecticut hospitals pay for upfront Medicaid services and how much they are reimbursed by the state has been steadily increasing over the past few years. The difference jumped from $255 million in 2006 to $300 million in 2007.
The Connecticut Hospital Association is still compiling 2007-2008 data, but CHA senior vice president of health policy Stephen Frayne said he expected that figure to rise as heavy layoffs across the state put a strain on hospitals.
A snapshot of hospital performance in Hartford provides a look of pressures experienced across the state.
Saint Francis Hospital and Medical Center, which recorded healthy margins in recent years, posted a $12.9 million operating loss in the 2008 fiscal year because of heavy investment losses and a greater demand in costly care.
Charity care — services the hospital provides without the expectation of receiving compensation — jumped to $13.9 million last year, up from $11.1 million in 2007. Write-offs for bad debt increased to $27.4 million from $22.4 million over the same time.
Saint Francis Chief Financial Officer Steven Rosenberg said he expects those pressures to continue as the endowment, which dropped $8 million since October to $40 million, continues to suffer along with the market.
“Hospitals never had a huge amount of endowment for special purpose funds,” Rosenberg said. “We need to make money on operations and expect a certain return on investments.”
Hartford Hospital, which recorded a negative 1 percent operating margin in fiscal 2007-2008, ran a 5 percent deficit when investment losses were included.
Bad debts jumped to $30 million from $24 million the previous fiscal year, and Medicare and Medicaid cases made up 57 percent of hospital discharges last year.
Hartford Hospital chief operating officer Jeffrey Flaks said he expects those numbers to climb even further this year.
“The indication is that it will rise,” Flaks said. “That would be a function of the employment base in the state.”
With two potential mergers falling apart this month, 2009 will likely prove to be a transitional year for Connecticut hospitals.
Gov. M. Jodi Rell last week said she was opposed to the construction of a new $475 million hospital on the University of Connecticut Health Center campus in a partnership with Hartford Hospital. Some lawmakers have raised the possibility of closing the university’s John Dempsey Hospital, which is running a $17 million deficit this year.
Earlier this month, the Eastern Connecticut Health Network pulled out of a deal to purchase Johnson Memorial Hospital.
Johnson has already fielded calls about new potential partners, and the hospital is in a much better position than it was when it filed for bankruptcy in November and laid off almost 150 employees, said Peter Betts, Johnson Memorial Corp. interim president and chief executive officer.
“As we sit now, we are a much more attractive partner,” Betts said.
At this point, there exists some confusion about how an expected $1.3 billion in stimulus funding could provide relief to Connecticut’s hospitals.
The stimulus funding comes in the form of an enhanced reimbursement rate during a 27-month period, starting October 2008, when the federal government will reimburse the state 60 cents on the dollar instead of the typical 50 cents.
In her February budget proposal, Rell outlined a reduction in $283 million in state Medicaid spending through fiscal 2010-2011 through a combination of program cuts and instituting premiums and co-pays for certain participants.
Frayne said the state stands to lose 60 cents on each dollar of allotted stimulus funding for Medicaid for every dollar Rell cuts from state Medicaid spending.
So in the end, Connecticut could stand to receive less than $1.3 billion.
“Let’s make sure those dollars being earmarked first to make sure we don’t cut benefits and that we cover the growth of enrollment,” Frayne said. “Let’s use some money to make possible for providers to provide this care, and then use what’s left over to help balance the rest of the budget.”
