Hospitals in poor financial health

PORTLAND – The financial health of Maine hospitals has declined over the past year because of lower insurance reimbursements and rising costs of employees, pharmaceuticals, insurance and new technologies, the Maine Hospital Association reported Tuesday.

The association’s survey showed that the average operating margin of the 39 hospitals dropped from 3.2 percent in the first quarter of 2001 to 0.8 percent in the first quarter of this year.

Overall, two-thirds of Maine hospitals showed declining margins, and 42 percent lost money, it said.

“We need to pay attention to this, and we need to pay attention now. There’s a very serious decline here,” said Steven Michaud, president of the Maine Hospital Association in Augusta.

A variety of factors have come together to work against hospitals’ bottom lines, including declining Medicare, Medicaid and commercial insurance reimbursements, Michaud said.

Other factors ranged from growing prescription drug costs to costs associated with new technologies and retaining employees. The stock market also hurt revenues from endowments and other investments.

Rising employee costs were due to a labor shortage in direct care positions that required hospitals to hire temporary contract workers, which typically cost two to three times more than permanent employees.

The Maine Hospital Association decided to do the survey because of anecdotal evidence that the financial climate for hospitals had changed suddenly, said spokesman Mark Ishkanian.

Hospitals are trying to further reduce costs without cutting services through layoffs, hiring freezes, budget cuts and reductions in service, or in some cases all of the above, Ishkanian said.

But hospitals are walking a fine line with cuts in some areas, like salary freezes or wage reductions.