Financial Analysis 2007 - News Release

Contact: Joe Martin, Communications Director
717-232-6787 or


Harrisburg, PA - November 25, 2008 - The number of ambulatory (outpatient) surgery centers (ASCs) licensed in Pennsylvania continues to grow, according to a new report from the Pennsylvania Health Care Cost Containment Council (PHC4). Between June 2007 and May 2008, 17 new ASCs opened, bringing the statewide total to 245. After a leveling off of profits in Fiscal Year 2006 (FY06), the statewide total margin for the ASCs rose by 3.9 points in FY07 from 20.85% in FY06 to 24.74% in FY07. In the six years between FY01 and FY07, the statewide total margin for ASCs increased 13.3 percentage points – an average of about 2.2 percentage points per year.

"While this most recent growth in new ASCs is not as brisk as the prior 12-month period when 28 new facilities opened, it still reflects the ongoing outpatient surgery trend," said David R. Kreider, PHC4’s Chairman and Vice President for Operations and Treasurer for the Pennsylvania Chamber of Business and Industry. "ASCs, which outnumber the state’s acute care hospitals, continue to perform remarkably well as both their statewide total and operating margins increased 3.9 points during FY07."

In addition to ASCs, PHC4’s Financial Analysis 2007, Volume Two reports on the financial health of other non-General Acute Care (GAC) facilities, including long-term acute care, rehabilitation, psychiatric, and specialty hospitals.

Changes in the Medicare eligibility and reimbursement rules have resulted in fewer Medicare patients receiving care at long-term acute care hospitals and fewer patients being treated at rehabilitation hospitals.

During FY07, Medicare discharges at long-term acute care hospitals fell 6.0% while discharges from all other payors increased an average of 2.3%. This decline in Medicare patients at long-term acute care hospitals can be attributed to the phase-in of the Medicare "25% Rule." This rule places limits on the percentage of Medicare patients that can be admitted to a LTAC hospital from a single GAC hospital. If LTAC hospitals do not comply with the rule, they would not be eligible for Medicare’s higher long-term care hospital rates.

Because LTAC hospitals received more than two-thirds (67.7%) of their patient revenue from Medicare patients during FY07, the decline in Medicare patients was the major factor in the 0.6 percentage point decline in statewide operating margin during FY07. The statewide operating margin fell from 3.72% in FY06 to 3.09% in FY07.

During the five years since FY02, discharges at the rehabilitation hospitals have fallen 27.7% or an average of 5.5% per year. The decline in discharges at acute rehabilitation units of GAC hospitals was even greater, declining 30% over the five-year period for an average of 6.0% per year. The primary factor in the decline in patients receiving acute rehabilitation care was the phase-in of federal rule which currently requires that 60% of all patients at acute rehabilitation facilities be treated for 13 specific conditions. Acute rehabilitation facilities must comply with this rule to remain eligible for the higher Medicare rates for acute rehabilitation care.

The statewide average operating margin for the 21 rehabilitation hospitals fell for the second consecutive year. The statewide average operating margin fell a total of 3.2 points over the two-year period from 12.24% in FY05 to 9.06% in FY07.

After a long history of negative or very small positive statewide average operating margins, the 17 psychiatric hospitals in the Commonwealth have experienced, as a group, an increase in the statewide operating margin for the third consecutive year. The statewide operating margin grew another 0.4 point from 5.28% in FY06 to 5.69% in FY07. From FY04 to FY07, the statewide operating margin for the 17 hospitals as a group has improved a total of 9.5 points.

The Pennsylvania Health Care Cost Containment Council is an independent state agency charged with collecting, analyzing and reporting information that can be used to improve the quality and restrain the cost of health care in Pennsylvania. Copies of Financial Analysis 2007, Volume Two are free and available on the Council’s website at or by calling PHC4 at 717-232-6787.