Decline in hospital revenue leads to high health care costs

Hospital revenue is down and employee health insurance premiums went up, but business… Hospital revenue is down and employee health insurance premiums went up, but business remained good at UPMC Presbyterian hospital.

With an 18 percent profit margin in the past year and net patient revenue of $920 million, UPMC Presbyterian experienced the greatest net patient revenue of any general care hospital in Pennsylvania in the 2002 Fiscal Year, according to a report released by the Pennsylvania Health Care Cost Containment Council.

Net patient revenue reflects revenue only from patient care, and does not take into account revenue from operations such as research, educational activities, cafeterias, parking or rent.

But there’s no connection between the revenue at UPMC Presbyterian or the overall 3 or 4 percent profit margin of UPMC hospitals last year and the increase in employee health insurance costs for the next year, according to UPMC spokesperson Jane Duffield.

Pitt’s service employees will pay almost 75 percent more than they did last year for family health insurance provided through an exclusive relationship with UPMC Health Plan in the coming year. They rejected Pitt’s initial April 15 proposal of a 1.75 salary increase, asking for more money or lower health care costs.

“The major concern here is that our members have already been paying $110 per month,” said Tom Hoffman, a deputy trustee for the local chapter of the Service Employees International Union.

Hoffman explained that the monthly cost for the family plan most popular among Pitt’s service workers would increase to $192 next year.

“One of the major problems is that the state’s broke, also,” Hoffman said, explaining that health care costs are a problem for many employees throughout the state and nation.

“Pitt really should provide affordable health care for its workers,” Hoffman said. He added that members of the health plan must go to UPMC for health services.

“It sort of makes you wonder, there – it’s almost like a monopoly,” Hoffman said of the relationship between Pitt and its exclusive health care provider, UPMC.

The old contract between the service employees and Pitt expired in June.

“One of the things they told us was that the rates were going up because the members kept going to the most expensive hospitals,” Hoffman said. “Now they’re giving us a plan that makes us go to the most expensive hospitals. They ought to be able to come up with affordable health care coverage.”

The health care options offered in to employees in May came at a much lower price than what was originally offered, according to Vice Chancellor for Public Affairs Robert Hill. Months of negotiations and planning went into what he hoped would be the final options, which he said were significantly less expensive than the options first brought to the table.

“We were able to get the costs from a prohibitive cost down to a manageable level,” Hill said, attributing much of the credit for the smaller increases to “artful management” by Pitt’s health benefits negotiators.

“Everyone should be able to find one that works,” Hill said of the new employee health insurance options, adding that each employee’s decision will require “savvy consideration.” No UPMC spokesperson could comment on the private relationship between UPMC and Pitt, or on the employee insurance cost increase.

But according to Duffield, the financial difficulties facing hospital administrators across the country have not missed UPMC. She gave credit for the relative fiscal success of UPMC to “astute financial management,” as well as the world-renowned researchers and the “unique array of services” that make UPMC Presbyterian particularly successful.

“Overall, the system’s experiencing a lot of the problems that other health care systems are,” Duffield said. “The [UPMC Presbyterian] figures only reflect the profitability of one hospital, and not the whole system.”

Although the UPMC system experienced a positive profit margin in a year when many hospitals lost money, the profit must go back into the system for UPMC to continue its success, according to Duffield.

“All of the revenue that UPMC Presbyterian gains goes back into the product,” Duffield said. “We’re very pleased that we’re doing well and can still support the research of the University.”

Forty-one percent of Pennsylvania’s general care hospitals lost money in the 2002 Fiscal Year, according to the PHC4. Attributing much of the decline in revenue to a drop in non-operating income – such as investments, trust income and contributions – the council reported an average increase of about 7 percent in expenses for greater staffing costs, malpractice premiums, drugs and medical equipment.

Balancing the expense increase, however, is an average increase of about 7 percent in revenue.

Many Pitt service workers, who make about $500 a week, may opt out of the more expensive family coverage plans, instead relying on state-funded programs to insure their families, Hoffman said.

On the morning of May 15, in response to Pitt’s announcement of the cost increases, some workers gathered outside the State Office Building downtown to pick up applications for the Children’s Health Insurance Program, a state-funded health care program.