Wisconsin hospitals earned $1.95 billion in net income in fiscal year 2018, around $280 million less than they did in 2017, according to a report published Friday by the Wisconsin Hospital Association.
The net-income percentage fell from 9.8 percent to 8.3 percent during the period.
Forty-one hospitals lost money in FY 2018, eight more than the prior year. Total hospital revenue was $23.4 billion, up about $1 billion from FY 2017.
“It’s a tougher environment,” said Brian Potter, WHA chief financial officer. “Healthcare is not inexpensive, and so there’s a lot of pressure from all payers to try to reduce the costs.”
Potter noted that net income has been trending down in the last couple of years. He cited Medicare cuts, which helped fund the Affordable Care Act's coverage expansion, as a big driver in the decline.
He noted that they’re also seeing a larger portion of a hospital’s business coming from Medicare, given an aging population.
Medicare accounted for 45.3 percent of patient revenue in FY 2018, up from 44.4 percent in the prior year. Meanwhile, commercial payments fell from 36.5 percent in FY2017 to 35.8 percent in FY2018.
“You’ve got Medicare, who’s paying worse than it has in the past, and you have more of your business now being in Medicare than in commercial, which commercial pays significantly better,” Potter said. “I think that payer mix component is really one of the big drivers.”
Potter said planned further Medicare payment cuts will put more pressure on hospitals to do more on expenses to maintain a margin that allows them to continue operating.
Operating margins are also declining at health systems, Potter said. The report noted that Wisconsin hospitals often provide the operating margin that allows health systems to support unprofitable services that are necessary for patients, like nursing homes, physician clinics and home healthcare.
WHA also surveyed 19 of the state’s largest healthcare systems, comprising 104 hospitals. While the average operating margin for hospitals within the systems was 8.8 percent, the systems as a whole had margins averaging 3.6 percent.
For FY 2017, WHA surveyed 18 of the state’s largest healthcare systems, representing 96 hospitals. The average operating margins for the hospitals and the health systems were 9.6 percent and 4.6 percent, respectively.
A rise in uncompensated care has also played a role in decreasing margins, Potter said. Uncompensated care charges went up 7.6 percent in FY 2018 to $1.2 billion, according to a separate report from WHA. Charity care amounted to $590.2 million, while bad debt was at $633.4 million.
Part of the reason for the change could be rate increases, according to Potter.
There was a $20.2 million increase in uncompensated care at cost, which was $436.8 million in FY 2018. That broke down to $209.1 million in charity care at cost and $227.7 million in bad debt at cost.
The main reason for the increase is plan design changes, with patients having to bear a higher portion of their healthcare costs through deductibles, coinsurance and copayments, Potter said.
ABC for Health Executive Director Bobby Peterson said “myopic policy decisions” by state and federal lawmakers have resulted in more people lacking medical coverage for needed care. He said expanding Medicaid and strong consumer protections could help.
“Bad debt and uncompensated care expenses hurt the bottom line for patients and hospitals, especially people affected by health disparities," he said in a statement.