NCPA - National Center for Policy Analysis

Non-Profit Hospitals Are In Sorry Financial Shape

February 1, 2001

Community nonprofit hospitals are being hit with declining or stagnant revenues, growing costs and mounting losses -- making it increasingly hard for them to finance new equipment.

  • Over the past decade, 10 percent of U.S. community hospitals have closed -- and many of those which have survived are in poor shape.
  • Operating margins among the survivors are less than 3 percent on average -- too low to cover capital costs.
  • Among the problems is that Congress cut Medicare reimbursements to hospitals -- while allowing the Medicare rulebook to swell to 45,000 pages.
  • Observers also note that health-maintenance organizations are slow to reimburse hospitals for covered services.

For-profit hospitals are common in the South and West, but they still amount to less than 15 percent of the total number of hospitals nationwide. For-profits are rare on the East Coast and New York has even added to the problem by outlawing ownership of hospitals by publicly-traded companies.

Non-profit hospitals looking for a white knight, for-profit savior must endure months of regulatory investigation.

Yet hospitals can be turned into extraordinarily profitable businesses. During 2000, shares of shareholder-owned hospitals more than doubled -- and had operating margins ranging from 13 percent to 24 percent.

Source: "Reconstructive Surgery," Economist, January 27, 2001.


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