While operating margins for Pennsylvania hospitals remain stable at 2.1 percent, total margins "have fallen off a cliff," said Carolyn Scanlan, president and chief executive officer for The Hospital and Healthsystem Association of Pennsylvania.

Overall margins, which include all revenue sources in addition to basic operating income, hit minus 6.3 percent for the last six months of 2008 and there's been a 12 percentage point drop in the past two years, raising the specter of layoffs, reduced services, delayed investment in new equipment and scuttled or revamped capital improvement projects.

The dramatic drop is due largely to investment portfolios damaged in the recession, although private contributions also have fallen.

"In the past, it was those types of revenue that would help a hospital get through a difficult fiscal situation," said association spokeswoman Julie Kissinger.

In addition, hospitals reported in a March survey that they were seeing a reduction in elective surgeries and increases in the numbers of uninsured or underinsured patients seeking treatment.

"Clearly the recession is taking its toll," said Ms. Scanlan in a news release. "We need to assure that hospitals can keep their doors open, especially now when people are struggling even more, and local economies need the assurance of a stable economic anchor."

Ms. Scanlan said hospitals also were concerned about a proposed cut of $75 million-plus for combined state and federal Medicaid hospital funds in the 2009-2010 state budget.

Unless that money is restored, she said, "More hospitals will be forced to lay off staff and reduce or close services."