Lancaster General Hospital ended fiscal year 2009-2010 with a multimillion-dollar surplus.

It's a healthy chunk of change — but less than half the surplus the nonprofit booked just four years ago.

The hospital released its Internal Revenue Service Form 990 earlier this month, showing a surplus of $66.6 million for the period July 1, 2009 to June 30, 2010.

That's down from $136.8 million in fiscal year 2006-2007, and the lowest surplus since 2004-2005.

Lancaster General Hospital — which includes the downtown facility, Women & Babies Hospital and various outpatient facilities around the county — remains one of the most financially stable hospitals in the state. "Our margin went from over 9 percent [in 2008-2009] to just over 7 percent," said John Lines, hospital spokesman. Then again, "the state average is just over 4.5 percent."

Still, hospital officials acknowledge that times are tougher than they used to be. Expenses are rising, particularly retirement benefits and unreimbursed Medicaid costs. Grants and other financial assistance to the local community fell in 2009-2010, mostly because 2008-2009 saw the hospital make major one-time contributions to SouthEast Lancaster Health Services so it could purchase the building for its Arch Street clinic.

The drop in the surplus "reflects the evolving health care and economic landscape both in our region and in Pennsylvania," Lines said. "We're seeing higher expenses, lower demand for certain specialties — particularly outpatient surgeries — and additional competitors into the market."

More and more consumers, he said, "are avoiding the hospital, and hospital care, where possible."

According to the hospital's tax filing, revenues increased in 2009-2010 to $834.4 million, up 2 percent from the previous year.

Expenses rose from $741.1 million in 2008-2009 to $767.8 million in 2009-2010 — an increase of 3.5 percent.

The surplus, or revenues less expenses, fell $12.2 million, from $78.8 million in 2008-2009.

The hospital remains the county's biggest employer, employing 6,693, according to the form 990. That's a decrease from 6,812 in 2008-2009.

And the increase in salaries and benefits was a major factor in the hospital's overall rise in expenses. Compensation rose from $385.5 million in 2008-2009 to $412.6 million in 2009-2010 —!\qan increase of more than 7 percent.

Lines explained that "the main driver of the increase was pension expenses, [which] increased from $14.3 million the previous year to $37.4 million."

Lancaster General employees have a defined-benefit pension, he said. Actual salaries increased by just half of 1 percent across the board.

Some LGH executives got much bigger increases — while others made less.

Hospital CEO Tom Beeman — who has been a captain in the U.S. Naval Reserves for 27 years and began a military leave of absence Oct. 15 — was the hospital's highest-paid employee in 2009-2010, with a total compensation of $1.323 million, including a base compensation of $649,037 and bonuses and incentives of $300,000. This actually represented a decrease from his 2008-2009 total compensation of $1.347 million.

The hospital's second-highest-compensated employee in 2009-2010 was Robert P. Macina, an on-staff attorney whose total compensation was $1.14 million — though Lines pointed out that more than half of this, $580,260, went toward his retirement package.

Rounding out the top five highest-compensated employees in 2009-2010:

• Marion A. McGowan, chief operating officer, received total compensation of $747,888, up 3 percent.

• Jan Bergen, acting CEO in Beeman's absence, received total compensation of $733,145, up 7.6 percent.

• Dr. Fred Rogers, medical director of the LGH Trauma Center, made $705,812 in total compensation. His compensation was not reported on the hospital's 2008-2009 Form 990.

Seven other employees earned more than $500,000 in total compensation in 2009-2010, according to the filing.

Lines said executive salaries are reviewed by the hospital's board of trustees, "then compared with other health care providers in the Northeast." Salary increases are "based on the clinical and financial performance of the hospital."

LGH salaries are comparable to the similar-sized hospitals in the region. Dr. Harold L. Paz, CEO of Penn State's Milton S. Hershey Medical Center, earned total compensation of $938,420 in fiscal year 2008-2009, the latest for which information was available. Bruce M. Bartels, president of WellSpan Health — which operates York Hospital — made $1.296 million in 2008-2009.

Charitable care
Lancaster General provided $83.3 million in charity care, unreimbursed Medicaid expenses and other "community benefits" in 2009-2010, according to its tax form; that represented a major increase from previous year's total of $71.2 million. Unreimbursed Medicare expenses alone totaled $63.6 million in 2009-2010 — 8.57 percent of all LGH expenses for the year.

Lancaster General disbursed grants and other payments totaling $3.97 million in 2009-2010, a drop from the $6.66 given out in 2008-2009. The reason: In 2009-2010 LGH gave more than $2.6 million to SouthEast Lancaster Health Services so it could purchase the building for its Arch Street clinic.

Among those receiving money from LGH in 2009-2010: the City of Lancaster, which received the same amount in payments in lieu of taxes that it got in 2008-2009, $1.38 million; and the School District of Lancaster, which received $1.35 million, $20,000 less than it got the previous year.

Other major grant recipients included Franklin & Marshall College, $135,000; the James Street Improvement District, $150,000; the Clinic for Special Children in Strasburg, $127,357; SouthEast Lancaster Health Services, $118,750; the Lancaster County Medical Foundation, $100,000; and the United Way, $67,000.

Lancaster Mayor Rick Gray said LGH's contribution helps keep city taxes down. "If it weren't for that money, we'd have to raise taxes about three-quarters of a mill," he said. "That'd be about $55 to $60 per year for a $75,000 home."

LGH, Gray said, recently helped him organize a "summit" for nonprofit organizations headquartered in the city, to impress upon them the need for PILOT payments. "But we wound up preaching to the choir," Gray said, because only those who already give a significant amount to the city attended.

"To say we are grateful [to LGH] is an understatement," Gray said. "It's a lot less money the taxpayers have to pay."

Tops region in revenues
Earlier this month the Pennsylvania Health Care Cost Containment Council released its annual financial analysis, which uses a formula to calculate revenues and expenses that's slightly different from the one LGH uses in its Form 990. The council report shows LGH had the highest annual revenues over the past four fiscal years of any hospital in the 11-county Region 5 in south-central Pennsylvania. According to the report, just five hospitals in Pennsylvania — Thomas Jefferson University Hospital, Children's Hospital of Philadelphia, the University of Pennsylvania Hospital, Lehigh Valley Hospital and the University of Pittsburgh Medical Center Presbyterian Hospital — had higher revenues in 2009-2010.

But the report also contains plenty of warning signs for LGH. While its revenues rose 4.87 percent from 2007-2010, expenses rose at twice that rate — 10.27 percent.

And while LGH's 2009-2010 revenue was highest among the 17 hospitals in Region 5, its total margin — 7.6 percent — was only fifth best in the region, down considerably from the three-year (2008-2010) average of 10.23 percent.

Statewide, the total margin for hospitals increased in 2009-2010, after declining for two years in a row. "Overall, the financial health of Pennsylvania hospitals improved primarily because of gains in the economy and the stock market," Joe Martin, council executive director, said in a statement.

So is LGH's health worsening?

Hospital officials do recognize the "downward trend," Lines said. Still, LGH sees potential for growth in the "urgent care" market; its first urgent care center opened last June in East Hempfield Township, off Rohrerstown Road just south of Lancaster General's Suburban Outpatient Pavilion.

But the market for urgent care is getting crowded, with numerous providers opening clinics here.

"As with any business, we expect competition to be ever-present in Lancaster County," Lines said. "Today's market is really no different than in the past; patients have a choice.

"Each of us are looking to meet the evolving needs of patients throughout the community."

Gil Smart is associate editor of the Sunday News. Email him at gsmart@lnpnews.com, or phone 291-8817.