5 Reasons Why a Hospital May Be Experiencing Quarterly Losses Right Now

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Orlando (Fla.) Health recently reported a surplus of $82.1 million in fiscal year 2012, almost $18 million higher than last year, but Orlando Health's operations actually lost money in the fourth quarter of this year, according an Orlando Business Journal report.

In the fourth quarter of FY 2012, Orlando Health posted a $689,000 loss — the system made $20.96 million from investment income, but operations losses totaled $21.65 million. "It was a difficult quarter from an operations standpoint, and…we will be working hard to bring operations back into the positive," Orlando Health CFO Paul Goldstein said in the report.

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It's not uncommon for a hospital or health system to experience a tough quarter these days. Mr. Goldstein said in the report there were five main reasons operations losses bled to the bottom line this year.

1. Quality improvements. Although it seems counterintuitive, Mr. Goldstein said in the report that the health system's efforts to improve quality are "actually harmful to the operating results in the short-term." Hospitals and health systems are stuck in the awkward transition phase between fee-for-service and value-based care where they are trying to keep people out of their facilities despite the fact they are still paid per service.

2. Medicaid reductions. Most states in the United States are having troubles financing their Medicaid programs, and hospitals and health systems have been witnessing reimbursement cuts to that federal program.

3. Rising observation cases. Mr. Goldstein said in the report observation cases increased more than 60 percent year-over-year in the fourth quarter. Medicare pays 12 percent less for observation cases compared with inpatient stays, but the costs are normally similar for either, according to the report.

4. Fewer managed care patients. Medicare and Medicaid patients are becoming larger chunks of a hospital's payor mix, including Orlando Health's, while commercial and managed care patients are on the decline.

5. Loss of market share. Hospitals and health systems are fighting for patients within more competitive primary service areas. Orlando Health's market share has now declined three straight years, from 39.9 percent in 2010 to 37.3 percent in 2012.

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