The Healthcare Financial Management Association, which studies hospital financial trends, warned yesterday that its 1986 survey of 2,000 hospitals shows "early warning signs of financial deterioration of the hospital industry."
The organization said its survey showed profits falling from 3.6 percent of revenue in 1985 to 3 percent in 1986, the average age of plant and equipment rising from 7.2 years to 7.3 years, and a number of other indicators suggesting the financial condition in the industry "is rapidly deteriorating."
The association, which consists of about 26,000 persons involved in health-care financial management, accounting and planning, said in its study of audited reports from about 2,000 of the nation's 7,000 hospitals that "we are not predicting the immediate financial collapse of the hospital industry."
But it said that the government and other payers, which have been squeezing the industry on rates, must understand that holding increases in rates to less than the inflation rate year after year will hurt the industry and "result in reduced access and lower quality."
The decline in profits as a percent of revenue (or operating margins, as the industry prefers to call them) is sure to generate new debate about the increase in Medicare payment rates now under consideration in Congress for fiscal 1988 -- 1 or 2 percent, compared with an inflation rate of nearly 5 percent in the costs of things hospitals typically buy.
Government studies have suggested hospitals might have made as much as 14 percent to 15 percent on Medicare operations in 1984 and 1985, but the industry and the HFMA contend these numbers are artificial and misleading.
Ron Kovener, HFMA vice president, said, "Congress and other payers should be aware of the fact that the industry is not in fat city."
Other unfavorable numbers reported by HFMA yesterday were a decline in return on investment -- from 5.2 percent in 1985 to 4.6 percent in 1986; and a decline in debt-repayment ability.
HFMA said these trends were partly counterbalanced by some favorable trends like improvement in liquidity.