Report: State’s acute-care hospitals returned to a positive profit margin in FY23

HBJ PHOTO | STEVE LASCHEVER Dr. Deidre Gifford is the commissioner of the state Office of Health Strategy, which regulates healthcare mergers and other transactions.

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By David Krechevsky

The financial status of the state’s hospitals improved in 2023, with the hospitals overall returning to a positive profit margin, according to a new report.

The Connecticut Hospital Association, however, accuses the report of "manipulating the math" to make the financial challenges hospitals face "seem less than they are."

The Annual Report on the Financial Status of Connecticut’s Short-Term Acute-Care Hospitals For Fiscal Year 2023 was released Friday morning by the state Office of Health Strategy (OHS).

According to the 155-page report, the state’s acute-care hospitals had an overall negative profit margin in fiscal 2022, but in fiscal 23 saw that average “turned around to a positive margin of 1.65%,” OHS said. That was a strong turnaround from a negative 3.5% margin a year earlier.

OHS Commission Deidre Gifford added that “70% of the state’s hospitals had a positive five-year total margin.” The five-year average total profit margin was 3%, the report states.

The state hospital system consists of 27 short-term, acute-care hospitals, 24 of which are 501(c)3 charitable organizations. Prospect Medical Holdings, a for-profit company, owns the other three hospitals — Manchester Memorial, Rockville General and Waterbury.

Gifford noted that while the overall financial picture has improved, there were some “important exceptions.”

“We know that some small and independent hospitals, as well as the ProspectCT hospitals, continue to struggle,” she said. “We are working with these hospitals and health systems to understand the real drivers of their financial losses and come up with lasting solutions.”

According to the report, 15 hospitals, or 56%, achieved a positive total margin in fiscal 2023, while 19, or 70%, have positive average five-year margins.

The other 12 hospitals had a negative total margin in fiscal 23, down from 14 a year earlier. The 12 hospitals were: Bridgeport, Charlotte Hungerford in Torrington, Day Kimball in Putnam, Johnson Memorial in Stafford Springs, Manchester Memorial, Norwalk, Rockville General in Vernon, St. Vincent in Bridgeport, Sharon, Stamford, Waterbury and Windham.

Eight hospitals, meanwhile, had negative five-year average total margins in the fiscal 2019 to fiscal 2023 period, two more than in the fiscal 2018 to fiscal 2022 period.

The eight hospitals include two operated by ProspectCT (Manchester Memorial and Rockville General), two operated by Nuvance Health (Sharon and Norwalk), one operated by Yale New Haven Health (Bridgeport), one operated by Hartford HealthCare (St. Vincent), and the independent UConn/John Dempsey and Bristol hospitals.

Connecticut’s largest health systems — including Yale New Haven Health, Hartford HealthCare and Trinity Health Of New England — continued to report positive margins over the past five-year period.

Key findings from the report include:

Statewide total health system operating losses were less in fiscal 2023 than in fiscal 2022 as revenues increased slightly more than operating expenses. Losses totaled nearly $463 million, a significant decrease from the $720.6 million operating losses reported by health systems in fiscal 2022.
Medical group operating losses account for $307 million of the $463 million in health system operating losses. UConn Health accounts for more than $100 million of the total operating losses attributed to medical groups.
Total health system net assets statewide totaled $10 billion, an increase of almost $3 billion since 2020.
Total revenues from all sources for all services have increased by $5 billion statewide since 2020.

While total operating revenue has increased by just over $3 billion since fiscal 2020, expenses increased from $13.7 billion in fiscal 2020 to $16.9 billion in fiscal 2023. OHS said the majority of the increase in expenses is attributable to three categories: salaries and wages (up 29%), supplies and drugs (up 33%) and other operating expenses (up 33%).

OHS also published a new report that it said provided additional context on the status of health system finances this year.

In comments on the report emailed to Hartford Business Journal by the Connecticut Hospital Association, the organization states that the OHS report confirms the findings of an independent report it released in December. The study found that hospitals face "negative operating margins and persistent financial challenges."

"While OHS’s methodology for calculating payment to cost coverage is designed to try to make these challenges seem less than they are, manipulating the math does not change the reality of the pressures that hospitals and the healthcare workforce experience every day," the CHA said in its statement.

CHA noted that improvement in some areas "is mostly outweighed by staggering increases in operating costs like drugs and supplies (which grew by $1 billion in one year), growing workforce costs, and significant Medicaid and Medicare losses totaling $1.4 billion and $1.3 billion respectively."

The association added that collaboration with state leaders "is critical right now to support solutions that keep our hospitals viable over the long term to improve health access, affordability, and equity.”

OHS defended its report, stating that it is prepared as required by state law and that the data used in the report is provided by hospitals to OHS and is certified as accurate through the Hospital Reporting System. "Calculations derived from the reported numbers are explained within the context of the report," an OHS spokesperson said, adding, "There has been no 'manipulation' of the data."

OHS added that if anyone identifies any errors or omissions in the report, it would investigate and correct them "if warranted."

OHS noted that Gov. Ned Lamont has proposed legislation that will allow the state Attorney General and OHS to review and address some of the financial and investment practices that have led to some hospitals’ financial struggles. That legislation was driven by the bankruptcy filing last month by Prospect Medical Holdings.