New Statewide Financial Data Points to Major Challenges Ahead for Virginia Hospitals

December 3, 2014

RICHMOND – Hospital operating margin* data compiled by Virginia Health Information (VHI) presents a bleak financial picture for Virginia’s hospitals and health systems. The data, which covers 2013, shows that 31 of the 88 Virginia hospitals reporting information had a negative operating margin for the year. Of the 38 rural hospitals tracked by VHI – including the now closed Lee County Medical Center – 17 hospitals had a negative operating margin.

Most troubling is that this data was reported prior to the significant provider payment reductions under the Affordable Care Act (ACA). Combined cuts to Virginia health care providers imposed by the ACA, sequestration under the Budget Control Act of 2011 and the American Taxpayer Relief Act were $80 million in 2013; these cuts increased to $317 million in 2014. In 2015 and 2016, cuts are estimated to escalate to $448 million and $507 million, respectively.

Speaking about the updated data, James B. Cole, Chairman of the Virginia Hospital & Healthcare Association (VHHA) Board of Directors and President and CEO of Virginia Hospital Center, said, “Nearly 35 percent of Virginia’s hospitals are currently operating in the red. Further, many of these facilities have been operating in the red for some time now. While some hospitals can make up for these losses through investments and other assets, put simply, this situation is unsustainable. We cannot continue to allow our hospitals to face additional funding cuts while at the same time providing significant amounts of indigent and other uncompensated care each year. It is time for our elected leaders to come to the table to work towards bipartisan solutions to these challenges.”

According to the 2013 data, negative operating margins, as well as negative total margins, ranged from less than one percent to over 25 percent. Comparing year-over-year data, 48 hospitals – or nearly 54 percent of the hospitals reporting data – saw their operating margins get worse last year when compared to 2012. Nineteen rural hospitals – or 50 percent – saw their operating margins decline during the same period. Additionally, approximately 45 percent of all hospitals and 39 percent of rural hospitals saw their overall total margins decline last year.

“Many Virginia hospitals are currently facing precarious fiscal challenges,” said VHHA President and CEO Sean T. Connaughton. “Cuts to Medicare and other programs, combined with high levels of indigent care and the uncertainty surrounding closing the coverage gap, make it difficult for hospitals to invest in their people and technologies. Moving forward, additional cuts to Disproportionate Share Hospital funding will exacerbate these challenges. The effect of these cuts is particularly acute in Virginia’s rural hospitals, where nearly 80 percent of patients are on either Medicaid or Medicare or uninsured.”

The updated data can be found at www.vhi.org.

* The VHI full report includes total margins of Virginia’s hospitals. Operating margins are the recognized indicator of financial stability for any business. Operating margins exclude revenue from investments, financial instruments and other non-operating sources. VHHA has a list of operating margins for 2013 for VHHA member hospitals available on its web site athttp://www.www.vhha.com/documents.html?id=1230.

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About VHHA: The Virginia Hospital & Healthcare Association is an alliance of 110 hospitals and 35 health delivery systems that develops and advocates for sound health care policy in the Commonwealth. Its vision is to achieve excellence in both health care and health.