PRINCETON – New Jersey hospitals saw a slight decrease in their statewide operating margins for year-end 2012, due to a declining trend of inpatient volumes, high-deductible health plans, the expectation of Medicare sequestration cuts and lower reimbursement rate increases from governmental and private insurers. All told, 14 of New Jersey’s hospitals finished the year with a loss from operations.

The statewide average operating margin decreased to 2.9 percent in 2012, compared to 3.1 percent in year-end 2011. However, the statewide total margin – which includes non-operating activity such as investment income and contributions to employee pensions – increased from 0.3 percent in 2011 to 4.4 percent last year. The increase in total margin is related to non-operating gains such as improved investment income and smaller pension adjustments than in previous years.

The data is contained in the 2013 Financial Status of New Jersey Hospitals report, produced annually and released today by the New Jersey Hospital Association. The report is based on final audited financial data for 2012.

“New Jersey hospitals continue to do more with less by streamlining their operations and increasing efficiencies across the board,” said NJHA President and CEO Betsy Ryan. “In this era of healthcare reform, their goal is to improve the value of healthcare services – delivering high-quality care while holding the line on healthcare costs. This latest financial data shows that New Jersey hospitals have had some success in that delicate balancing act, but their fiscal challenges remain.”

Hospitals continue to face reduced payments for services, especially those from governmental payers such as Medicare and Medicaid. Hospitals have engaged in aggressive cost reduction programs and have also embraced opportunities to work more collaboratively with other providers such as physicians and post-acute providers. But even with the implementation of these cost-containment programs, New Jersey’s average operating margin still lags behind the national average of 5.5 percent, as reported by the American Hospital Association.

Other financial indicators from this year’s report include:

• The average days cash on hand (the level of cash reserves available to meet the hospital’s expenses) increased from 51.1 days in 2011 to 54.1 days in 2012.
• The average payment period (the average length of time it takes the hospital to pay a creditor) dropped from 81.5 days to 77.5 days from 2011 to 2012.

This year’s report offered a significant improvement by adding a new margin. Developed to be more inclusive than the traditional operating margin, yet not as inclusive as the total margin, the new “excess margin” is the operating margin plus the traditional components of non-operating income. The excess margin was designed to address the distortions in the total margin resulting from recent changes in accounting principles regarding “Defined Benefit Pension and Other Postretirement Plans.”

“Our hospitals will have to remain focused and creative in their efforts to continue to deliver high-quality care in a cost-effective manner,” said Sean Hopkins, senior vice president of health economics for NJHA. “With further cuts to come from sequestration, the use of hospital funds to pay for the one-year physician reimbursement increase and the uncertainty associated with more Medicare cuts on the horizon, 2014 could be another challenging year for hospitals financially.”

Reporters and editors: Contact NJHA if you would like to receive an electronic version of the full Financial Status of New Jersey Hospitals report. This report contains aggregated statewide data only.