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Rogue Valley Medical Center ended the year making money, but fell short of the 5 percent profit margin that investors like to see. pennell photoBob Pennell

Home prices are down, unemployment is up, and there's talk of recession everywhere you go. So how are Jackson County hospitals faring in these uncertain times?

The answer depends on where you ask the question, and how much of an accountant you want to be to understand the answers.

Health care is the largest industry in Southern Oregon, so our hospitals' health matters to all of us, experts say. The simplest measure of financial well-being is whether you bring in more money than you pay out. On that score, Medford's two hospitals did OK in 2006 (the most recent year for which data is available), but Ashland Community Hospital paid out more for wages, supplies and equipment than it took in.

Hospitals have been struggling for years with costs that rise faster than payments, said Tom Birmingham, chief financial officer for Ashland Community Hospital. Other factors add to the problem: Many people can't pay for health care because they have no insurance or limited coverage, and Medicare, the federal health insurance program for seniors, doesn't pay hospitals (or physicians) the full cost of the services patients use.

"Expenses go up all the time," Birmingham said. "Income keeps going down. I feel like I'm trying to pull a rabbit out of a hat. Some day there's not going to be a rabbit."

Ashland's situation isn't unique. Seventeen of Oregon's 57 hospitals finished the 2006 budget year in the red. Providence Medford Medical Center and Rogue Valley Medical Center ended the year in the black, but both fell short of the 5 percent profit margin that investors like to see when hospitals look to borrow money, said Kevin Earls, vice president for policy and advocacy for the Oregon Association of Hospitals and Health Systems.

Providence Medford finished the year with a 2.6 percent margin (according to data filed with the state Office of Health Policy Research) and RVMC's margin was 1.5 percent. Hospitals use that profit margin to buy new technology, upgrade their buildings, and invest for the future, said Scott Kelly, vice president for planning, marketing and business development for Asante Health System, RVMC's parent company.

Earls said hospital income fluctuates dramatically from year to year. In a typical year, about one-third of Oregon hospitals pay out more than they earn. Another one-third earn a margin of less than 2 percent, and the other third earn a healthier margin.

Lately, margins have been slim, and the numbers declined dramatically for all three hospitals in 2006, due in part to a large increase in charity care. For all three hospitals taken together, charity care — given to patients with no expectation of payment — increased 27.2 percent in 2006, and it has grown more than five-fold since 2002.

All three hospitals offer charity care to patients who meet income guidelines determined by the federal government's definition of poverty ($10,400 for an individual, $21,200 for a family of four in 2008). Each hospital has its own policy, but at Rogue Valley Medical Center, for example, people whose income is less than 200 percent of poverty level can get their bills written off completely if they fill out financial aid forms. Reduced levels of financial aid are available for people with incomes all the way up to 400 percent of the poverty level.

"If you qualify, we give it to you," said Marvin Haas, Asante's chief financial officer, but he said that could change if the demand for charity care continues to rise.

Earls said several related factors have increased the number of people who can't afford hospital care. Over the past 10 years, the Legislature dramatically reduced the size and scale of the Oregon Health Plan, which eliminated coverage for thousands of people in Jackson County. At the same time, premiums for commercial health insurance continued to rise, in part to cover the costs of providing care for those who can't pay.

"As government-sponsored care reimbursement drops, it creates immediate and direct cost increases for commercial insurance," he said.

This "cost shift" represents about 15 percent of the cost of health insurance premiums. As premiums increase, some employers who are just hanging on tend to drop insurance coverage for their employees, sending more people into the ranks of the uninsured.

"Southern Oregon has a higher percentage of uninsured than Portland or Northern Oregon," said Tom Hanenburg, Providence Medford's chief executive officer. He said Providence Medford's service area has the highest percentage of uninsured of the seven Providence hospitals in Oregon.

Labor costs also add to hospitals' rising expenses. Nurses, physicians and medical technicians are in short supply across the nation, and local hospitals have to compete for them in a national market. Ashland Community Hospital, for example, spent at least $2.5 million more during the 2007 budget year than in 2006 to provide raises for nurses and to pay for nurses and other staff hired on contract when hospital administrators couldn't meet staffing needs.

The November elections could signal the beginning of significant changes in the health-care system, but until reforms emerge, hospitals will rely on the people who have health insurance to make up the shortages left by Medicare and the Oregon Health Plan and the uninsured.

"People need health care," Birmingham said. "You can't turn them away."

Reach reporter Bill Kettler at 776-4492 or e-mail bkettler@mailtribune.com.

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