Hospital Spending Racing Past Revenues

The growth of expenditures by nonprofit hospitals is outpacing the growth of revenue streams, a ratings agency said yesterday, and in New York the trend may be felt more acutely than in the rest of the nation.

In a report released yesterday, analysts from Moody's Investors Services cautioned that for the first time in five years, the median growth of hospital expenditures eclipsed the median growth of their revenues. Based on fiscal year 2006 financial data, analysts said expenditures grew 7.8%, compared with 7.5% in 2005. By contrast, median revenue growth increased 7.6% in 2006, compared with 8.5% in 2005.

In New York, the trend will take a toll on hospitals already struggling to stay afloat, industry insiders said.

"Financial performance of New York hospitals tends to be weaker overall than the national average," the president of the United Hospital Fund, James Tallon Jr., said. "Given the fact that hospital margins in general are thinner in New York, even negative in many hospitals, any trend like this is going to be felt in a place like New York because we don't have a big cushion."

New York hospitals' slim profit margins are further burdened by rising medical malpractice costs. This year, hospitals will pay $1.3 billion in liability insurance, a 175% increase from 2000, according to an analysis by the Greater New York Hospital Association.

"We're not terribly surprised by the findings of this report because we've seen so many hospitals in New York struggle these last few years to just break even," a spokesman for GNYHA, Brian Conway, said. "Rising costs and shrinking reimbursements have put New York hospitals in a vice."

In the past 10 years, more than 30 hospitals have been forced to close, he said.

In a state-by-state list of hospital ratings, several New York City hospitals were downgraded in the Moody's report, including New York Methodist Hospital, to Baa2 from A3, and NYU Hospitals Center, to Ba2 from Ba1 in 2005, when it was rated with Mount Sinai Hospital. Still, the report contained good news for several New York City hospitals that saw their ratings improve since last year.

Analysts raised the ratings for the city's Health and Hospitals Corporation to A1 from A2. Mount Sinai Medical Center was rated Baa1, up from a rating of Ba1 that it received when it was evaluated with NYU Medical Center in 2005.

Close to two years after Lenox Hill Hospital's bonds were downgraded to junk status, the Upper East Side hospital's rating received a positive financial outlook in the new report.

The bonds were rated below investment grade, at Ba2, although analysts reversed its outlook, reported as negative last year.

"Needless to say, we're pleased," the hospital's chief financial officer, Michael Breslin, said. "It's an acknowledgment, we believe, that a lot of what we've committed to the investor community, we've delivered on."

Mr. Breslin said the hospital is projecting a "break even" budget this year, a marked improvement from three years ago, when the hospital, hemorrhaging cash, reported a $40 million loss.

Key to its success is several lucrative real estate transactions expected to yield a total of $100 million, he said. In June, the hospital sold six brownstones on East 76th Street for $26 million to the Chetrit Group, and it is expected to close a $30 million sale of an East 63rd Street building later this year. The hospital also is entertaining bids for a nine-story mixed-used building on East 76th Street that could yield $30 million or more.

Mr. Breslin also cited a recent U.S. News and World Report ranking of hospitals. Lenox Hill hospital rated 15th in cardiac care, he said. "For an organization that's been in the financial turmoil that we've been through to have this type of outcome is a testament to our patient care."