Report on Uncompensated Hospital Costs and Hospital Profitability
Report on Uncompensated Hospital Costs and Hospital Profitability October 2017 Director, Tom Betlach 1 EXECUTIVE SUMMARY The years of 2011 through 2016 have seen large growth and even larger declines in hospital uncompensated care. From Hospital Fiscal Year (HFY) 2011 to HFY 2013, hospital uncompensated care grew from $500 million to almost $900 million. This increase was followed by a sharp decline from HFY 2013 to HFY 2016. By HFY 2015 and HFY 2016, uncompensated care fell below its HFY 2011 levels. These fluctuations were due in part to state budgetary changes implemented during this time period. Of particular importance was the imposition of a freeze on childless adult enrollment effective July 2011, and its restoration and Medicaid expansion in January 2014. Despite large increases in uncompensated care, total net operating profit remained relatively stable, fluctuating between $554 million and $765 million. This was achieved with the help of the AHCCCS Safety Net Care Pool program, a temporary program designed to help mitigate the increase in uncompensated care associated with the enrollment freeze. Operating profitability varies considerably by hospital type. Both net operating and total margins for rehabilitation and short-term specialty hospitals exceeded 10% in HFY 2016, but margins were negative for long term care hospitals. In HFY 2016, net operating and total margins for critical access, psychiatric, and general acute care hospitals were in between 4.4% and 6.0%. Despite overall margins being higher in HFY 2016, the percentage of hospitals with a positive operating margin and a positive total margin declined. Finally, it is important to note that there are a number of factors that influence hospital profitability and uncompensated care including long-term and short-term business decisions made by hospitals, occupancy rates (which are approximately 60%), the economy, federal and state policies, and changes in the healthcare industry as a whole.
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