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2005 Oregon Hospital Financial Margins Excel
While all but two of Oregon's hospitals are not-for-profit institutions, this does not mean that they do not have revenues in excess of expenditures. Rather, it means that all "surplus" or "profit" must be retained within the organization. This surplus is used to repay debt, fund expansion, and perform other activities consistent with their mission. If not-for-profit hospitals do not generate a surplus, they cannot remain solvent.
The excel spreadsheet reports "profitability" with two key analytic indicators: operating margin and total margin. The operating margin reflects hospital financial performance based on its primary activity-direct patient care, while the total margin reflects how it is doing based on its overall activities.
Operating Margin: Operating margin is defined as (Operating Revenue-Operating Expense)/Total Operating Revenue. Operating margins in the 3% to 5% range are generally considered an indication of financial "health," and a negative operating margin is usually a sign of financial difficulty.
Total Margin: Total margin is the difference between total revenue and expenses as a proportion of total revenue. Non-operating income, which includes revenue from contributions, public appropriations and other government transfers, investments and income from subsidiaries or affiliates, is included in revenue for calculation of total margin. Occasionally hospitals with negative operating margins will have positive total margins because of revenue from these other sources.
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