Spectrum Hikes Charges 12 Percent

June 4, 2004
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GRAND RAPIDS — Spectrum Health will implement an average increase of 12 percent for hospital charges this fall, when a price cap expires.

The charge increase will enable Spectrum Health to boost its operating margin in order to accommodate growing patient volumes and cover an estimated $70 million in uncompensated care, including $40 million in losses for care of Medicaid and Medicare recipients.

In the present 2004 fiscal year that expires June 30, Spectrum Health is on track to post a margin of 2.2 percent on operating revenues of $1.86 billion.

“We cannot continue to have that kind of margin and continue growing,” CFO Mike Freed said Thursday night during the health system’s annual meeting. “This is not sustainable.”

The proposed FY2005 budget, even with the increases in charges at the health system’s three Grand Rapids hospitals, would only raise the margin to 3.2 percent — well below that of similar-sized health systems, Freed said. The 2005 budget projects revenues of $2.12 billion, a 15.4 percent increase over FY2004 that’s attributable largely to growth in the health system’s managed-care company, Priority Health.

Under a 1997 consent decree that allowed the merger of the former Butterworth and Blodgett hospitals to form Spectrum Health, the health system froze charges for three years and has lived for four years under a price cap tied to the Midwest Consumer Price Index.

In that time, Spectrum Health’s charges increased an average of 1.5 percent annually over seven years while costs escalated at a higher rate, Freed said.           

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