- The Washington Times - Monday, March 3, 2003

EVANSTON, Ill., March 3 (UPI) — Hospital operating margins registered a healthy increase in the second quarter of 2002 with smaller hospitals posting higher gains than their larger counterparts, a study by Solucient LLC showed Monday.

Despite concerns over the threat of bioterrorism and a lagging economy, U.S. hospitals posted a 6.28 percent operating margin in the quarter, the highest in five years and a full percentage point increase over the first quarter, according to the report, "The Health of Our Nation's Hospitals: A report on hospital operating margins 1997-mid-year 2002."

The report noted Wall Street was "surprisingly positive" about the health care industry in 2002.

"Driving the outlook was the health care sector's 'recession-proof' reputation — that is, individuals will need health care products and services regardless of the economy's condition," the report said. "Additional influences include the aging population, technological innovations and continued research and development to create cures for diseases and ailments."

The report suggested the hospital industry is becoming more efficient. Regionally, hospitals in the West showed the greatest improvement, increasing their operating margin to 7.88 percent, up from less than 5 percent the previous year. Hospitals in the South-Atlantic states also showed significant improvement, 7.48 percent, up 2 percent over the previous year. Only hospitals in the North Central region showed a slight drop in margin between the second quarters of 2001 and 2002, falling to 6.19 percent from 7.43 percent.

The increases came as patient census rose, along with higher average costs per adjusted discharge. The seeming conflict is accounted for through increased reimbursements, which increased overall revenues.

"However, the pressures on hospital operating margins show no signs of abating," the report said. "Expected cuts in Medicare funding in 2003, added to cuts in 2002 and previous years will force hospitals to find new ways of cutting costs, while maintaining quality of care."

(Reported by Marcella S. Kreiter, UPI Chicago Bureau)

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