ANALYSIS | Are Connecticut Hospitals Losing Money? It Depends

Our state’s hospitals are hemorrhaging money according to the Connecticut Hospital Association. They report losses of $164 million last year. But state officials are pushing back, saying hospitals aren’t telling the full story and hospitals are the main driver of rising healthcare costs in Connecticut. It all depends on how you look at it.

The hospitals are reporting on finances from last year, which haven’t been publicly released yet. But in the past, they’ve done very well. In 2021, Connecticut hospitals made $1.5 billion in total profits. Their report also doesn’t include profits from Connecticut’s large hospital-run health systems which were another $1.2 billion.

There are a lot of holes in the hospitals’ report. It includes only funding from operations such as patient care, ignoring non-operating revenue such as investments and joint ventures. According to official state hospital finance reports, from 2018 through 2021 operating profits averaged 2.7%, but total profits, including non-operating revenue, were almost twice as high at 5.7%. 

In 2020, Connecticut hospital revenues exceeded expenses by 2.61% or $325 million. Hospitals averaged 1.9% of expenses in uncompensated care, less than the US average. Top hospital executives averaged $2.6 million in total compensation and hospitals paid $1.3 billion in fees to corporate parent health systems. Large health systems received $1 billion in federal COVID relief, but it didn’t track with hospital financial need.

The hospitals blame rising labor costs, supply costs, treating sicker patients, and government program underpayments for their financial predicament. Industries across the country are struggling with the same problems. According to the US Bureau of Labor Statistics, hospital labor costs rose less than that of many industries including nursing facilities or accommodation and food services. Supply costs are up across all industries. In June, US inflation hit a record high of 9.1%. Hospitals may be treating more complex patients, but that is partly because patients with less severe problems are getting care as outpatients, usually in hospitals’ large health systems. Those profits are not reflected in the hospital association’s report.

The hospitals also blame lower payment rates from government programs for their financial stress. But there is little relationship between Connecticut hospital profits and the proportion of Medicaid revenue they receive. There is no evidence that lower Medicaid payment rates drive up other rates.

The hospitals do acknowledge that they have benefitted from federal and state COVID relief funds. According to their report, their profits from 2020 through 2022 were $1.2 billion higher because of taxpayer assistance. But those funds couldn’t last forever, and many other industries are having trouble also adapting to the loss of COVID funds.
Hospitals are using the report to argue against policy proposals to control skyrocketing healthcare costs. They’ve boosted their spending on lobbyists at the state Capitol. They now spend more than any other industry on influencing policymakers. Unlike for insurers, we can’t tell how much hospitals are spending on administration compared to patient care. Until we know that they have done everything possible to tighten their belts, it’s hard to make a case for more government funding or to exempt them from cost controls.

Nationally, hospital finances are expected to improve this year, even according to the consultants who wrote the hospital association’s report. On hospital stresses, Medicare’s oversight council says, “federal relief funds and increased Medicare payments more than offset pandemic-induced costs.” The problem may solve itself as hospitals adjust to a new post-COVID normal.