Financial Performance of Academic Health Center Hospitals, 1994-2000

Abstract

This study examined how competitive market dynamics between 1994 and 2000 have affected the financial stability of Academic Health Center (AHC) hospitals and their ability to support their academic and social missions. It looked at the financial challenges facing AHC hospitals through a survey involving 1,138 teaching hospitals. Findings demonstrate that fewer financial resources are currently available to subsidize mission-related activities than at any other time since 1994. Although the analysis focused on AHC hospitals, the authors considered other teaching hospitals and other types of hospitals. The financial strength of AHC hospitals has decreased to the point that their ability to fulfill their social missions appears to be at risk. In the aggregate, AHC hospitals derived their entire financial surplus from nonoperating revenue, which was used to offset operating losses. By 200l, less than half of AHC hospitals had positive operating margins. If these trends continue, or even stabilize, AHC hospitals might not be able to maintain their traditional commitments to education, research, and their communities. The observed decrease in private payer payments relative to costs for AHC hospitals may not be due to increased hospital costs. In recent years, AHC hospitals have controlled costs and generally become more cost efficient, but it is difficult to predict the form insurance payments will take and the future of employer's health care plans. An appendix contains a hospital efficiency model. (Contains 32 exhibits.) (SLD)