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 t hat the financial status of teaching hospitals, as measured by trends in profit margins, had deteriorated during the years 1985-1988, and th at major teaching hospitals had the lowest margins in the hospital ind ustry. 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. The y identified academic medical center hospitals using criteria establis hed by the Association of American Medical Colleges' Council on Teachi ng Hospitals; accessed financial performance data on these institution s from the Health Care Financing Administration's prospective payment system minimum-data sets for the years 1987-1991; evaluated the financ ial performance of these institutions for the five-year period by calc ulating their total margin, return on equity, and financial leverage; and determined the percentage of Medicaid discharges for each year. Th e 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 deb t financing percentages suggest that they will be forced to reduce the ir future rate of investment in new plant and equipment. Further, thei r overall financial performance is threatened by the growing percentag e of Medicaid discharges. These observations raise serious concerns ab out the financial viability of these institutions in the face of conti nued changes in the financing of hospital services.