The recession has dealt a significant blow to New Jersey hospitals, with a new report showing that the statewide 2008 hospital operating margin reached just 0.2 percent, the lowest point since 1999.
The data is contained in the 2009 Financial Status of New Jersey Hospitals report, released today by the New Jersey Hospital Association. The annual report examines hospitals' audited year-end financial data detailing hospitals' margins and other financial indicators.
Operating margins -- sometimes called profit margins -- measure how much money an organization has left after reconciling its operating revenues with its expenses. An operating margin of 0.2 percent means that New Jersey's hospital industry barely broke even last year, leaving virtually nothing left at the end of the year to reinvest in hospital programs and facilities.
By comparison, the 2007 statewide operating margin was 1.3 percent.
In another grim measure, hospitals' statewide total margin -- which factors in gains or losses from investments -- plunged to negative 14.1 percent, a dramatic fall from the 2007 total margin of 0.9 percent.
All told, more than 42 percent of New Jersey's hospitals ended 2008 with operating margins in the red, the report shows.
"Many hospitals -- far too many -- are barely scraping by," said Betsy Ryan, NJHA president and CEO. "They have long endured woefully inadequate payments from government and insurers for the care delivered to New Jersey residents. Now, with the added burden of the recession, New Jersey has a state full of hospitals teetering on the edge."
The Garden State already has experienced a rash of hospital closures and bankruptcies in recent years. Since 2007, nine N.J. acute care hospitals have closed and six have filed for bankruptcy.
Sean Hopkins, NJHA's senior vice president of health economics, says the new data reveals that hospital reimbursement policy has left the state's hospitals vulnerable to any unanticipated financial challenge such as the 2008 stock market crash and the economic struggles that followed.
New Jersey hospitals are paid less than their costs by three major government programs:
- Medicaid pays hospitals an average of just 66 cents for every $1 of care provided.
- Medicare pays hospitals 89 cents on the dollar.
- And the state's charity care program reimburses hospitals an average of just 42 cents for every $1 of care provided. Some New Jersey hospitals receive as little as 5 percent reimbursement under the charity care program.
Health insurers' efforts to further drive down hospital rates add to the problem, said Hopkins.
"New Jersey's low reimbursements left our hospitals with a very shaky foundation," said Hopkins. "And now that foundation is crumbling even further as hospitals fight to recover from the economic downturn."
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