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Economy & Business

While Still in the Black, Hospitals Warn About Sequestration

Hospitals in western Pennsylvania are warning that their operating margins are shrinking sharply, and that’s not counting the impact of the sequester from a 2 percent reduction from Medicare.

Denis Lukes, vice president at the Hospital Council of Western Pennsylvania, said operating margins at the trade association's 56 member hospitals dropped by more than half from a year ago. That coupled with possible cuts to government reimbursement leads to a “perfect storm.”

The report tracks financial data from the hospitals in 30 western Pennsylvania counties for the first six months of fiscal year 2013. It shows an average operating surplus of 1.85 percent compared to nearly 4 percent a year ago.

“These hospitals are operating at a very thin margin," Lukes said."Any additional cuts put hospitals in the red, potentially causing changes or reductions in services, and that Pennsylvania is considering further reductions (in reimbursement) on the medical assistance, yes, there is a number of hospitals that are already negative.”

However, as a group, the hospitals have an operating surplus of nearly $100 million.

Lukes said the hospitals have already been “tightening their belts,” and the thin operating margin impacts their ability to purchase new equipment and implement electronic medical record systems.

He said the Hospital Council of Western Pennsylvania is keeping an eye on the budget negotiations in Harrisburg. Gov. Tom Corbett has proposed a reduction in reimbursements. 

“The levels (of cuts) discussed have varied but any reductions at this point would be pretty significant to hospitals,” Lukes said.