Financial performance of academic medical center hospitals

In its 1990 report to the U.S. Congress and to the Secretary of Health and Human Services, the Council on Graduate Medical Education noted that the financial status of teaching hospitals, as measured by trends in profit margins, had deteriorated during the years 1985-1988, and that major teaching hospitals had the lowest margins in the hospital industry. To gain insight into the financial viability of major teaching hospitals, the authors updated the analysis of the financial status of these hospitals and further analyzed their financial performance. They identified academic medical center hospitals using criteria established by the Association of American Medical Colleges' Council on Teaching Hospitals; accessed financial performance data on these institutions from the Health Care Financing Administration's prospective payment system minimum-data sets for the years 1987-1991; evaluated the financial performance of these institutions for the five-year period by calculating their total margin, return on equity, and financial leverage; and determined the percentage of Medicaid discharges for each year. The analyses show that academic medical center hospitals had stabilized their short-term financial performance in recent years. Nevertheless, their financial position is not strong. Their return on equity and debt financing percentages suggest that they will be forced to reduce their future rate of investment in new plant and equipment. Further, their overall financial performance is threatened by the growing percentage of Medicaid discharges. These observations raise serious concerns about the financial viability of these institutions in the face of continued changes in the financing of hospital services.