The Truth About Hospital Profits

Our health care system in the US is having some troubles. American patients spend more out of pocket for their health care than residents of any other country (and proposed bills may make health care even more expensive).  There are 46 million Americans without health insurance. Doctors, nurses and health care providers also struggle. And hospitals have been making headlines lately with complaints about the cost of providing charity care to the uninsured (for which they receive big tax breaks).

But the numbers don't seem to match up for these struggling hospitals. According to a report (free registration required) on ModernHealthCare.com:

Aggregate profits at community hospitals hit another all-time high last year at $28.9 billion, up from $26.3 billion in 2004, according to data released by the American Hospital Association. The aggregate profit margin at the nation's 4,956 registered community hospitals -- defined as all nonfederal, short-term, general and specialty hospitals -- was 5.3%, the highest margin in seven years. The hospitals reported aggregate net patient revenue of $505 billion in 2005, up from $470 billion in 2004.

I don't claim to be an economic genius, but this just doesn't make sense. Hospitals say they are struggling, but their profit margins are robust? Can someone explain it to me?