Hospitals hurting in spite of BBRA

Lowest margins since 1984

The Balanced Budget Refinement Act of 1999 (BBRA) has not quelled many of the financial problems facing the nation’s hospitals, according to a recent study.

Despite the passage of the BBRA, America’s hospitals continue to show declining hospital profit margins, according to an Ernst & Young LLP and HCIA-Sachs LLC study, "The Financial State of Hospitals: Post BBA and Post BBRA."

Nationwide, total hospital profit margins have fallen significantly from pre-BBA levels, the study found. The BBA (Balanced Budget Act of 1997) caused total margins to decline from 5.5% to 2.9% in 1999, with the BBRA providing minimal relief. In fact, hospitals are expected to experience their lowest margins since 1984.

Smaller, rural hospitals are in the greatest financial jeopardy. By 2001, hospitals with fewer than 100 beds are estimated to report profit margins of less than 1%. By the end of 2004, the end of the five-year scoring window for BBRA, nearly 60% of all hospitals will be losing money, according to a Lewin Group study.

"While the BBA has been successful in halting decay of the Medicare Trust Fund, which is now expected to remain solvent until 2023, the health care crisis has shifted to the financial condition of the nation’s hospitals," said John Morrow, senior vice president of HCIA-Sachs. "Medicare payment reductions resulting from the BBA have caused a continued downturn in hospital financial visibility."

The impact of the reductions in Medicare payments attributable to the BBA has led to severe declines in hospital margin profits, according to Michael Hamilton, partner and national director of Ernst & Young’s Health Care Advisory Business Services. "The modifications made to the BBA as a result of the BBRA have not forestalled declining profit margins, placing many community hospitals in financial peril."