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Financial Data Shows Incomplete Picture of Hospitals’ Challenges

FY 2021 margins inflated by pandemic relief, market gains

June 09, 2022

While Pennsylvania hospitals’ reported margins appear to have improved for fiscal year (FY) 2021, a HAP analysis of the data found that the financial reality hospitals experienced—and continue to face—was, in fact, much harsher.

The timing of COVID-19 relief payments, record stock market gains that have since been reversed, and other factors contributed to many hospitals showing much improved margins for FY 2021, even as increases in expenses outpaced increases in patient revenue.

General acute care hospitals’ FY 2021 financial data was released today via the Pennsylvania Health Care Cost Containment Council’s (PHC4) annual Financial Analysis report. In a news release today, PHC4 Executive Director Barry D. Buckingham noted that the nearly eight percentage point jump in the total statewide margin realized by general acute care hospitals for FY 2021 is not reflective of hospitals’ financial health.

“Our data shows that these increases in operating and total margins reflect government relief funding and positive investment performance,” Buckingham said. “Many hospitals continue to face serious financial challenges.”

HAP’s analysis of the financial data found several factors contributing to the increased margins:

  • Operating revenue for FY 2021 was inflated by COVID-19 relief payments intended to help hospitals recover from losses that occurred during FY 2020. This distorted both total margins and operating margins.
  • Total margins were further distorted by the inclusion of investment gains from the record market surge during FY 2021. Those gains have likely been erased by the market downturn that’s occurred since then.
  • The financial results also do not reflect losses incurred by hospital-owned physician practices attributable to COVID-related utilization decreases.

Despite these factors, 30 percent of Pennsylvania hospitals posted negative operating margins for FY 2021 and another 15 percent had operating margins of less than 4 percent. Hospitals across Pennsylvania and nationwide currently face a perfect storm of financial challenges, including soaring costs, decreased patient volumes, and diminished market returns.

For more information, contact Jeffrey Bechtel, HAP’s senior vice president, health economics and policy.