During the fourth quarter of 1999, management reassessed its remaining portfolio and determined that two general, acute care hospitals originally included in the hospitals to be divested would remain in its portfolio. In addition, management decided to divest two additional general, acute care hospitals that no longer meet Triad's strategic plan. One of these hospitals, located in Roseburg, Oregon, was closed on February 11, 2000.
. the impact of reductions in Medicare payments mandated by the Balanced Budget Act; . the continuing trend toward the conversion of more services to an outpatient basis; and . the impact of the government investigations.
Triad's revenues continue to be affected by an increasing proportion of revenue being derived from fixed payment, higher discount sources, including Medicare, Medicaid and managed care plans. In addition, insurance companies, government programs, other than Medicare, and employers purchasing health care services for their employees are also negotiating discounted amounts that they will pay health care providers rather than paying standard prices. Triad expects patient volumes from Medicare and Medicaid to continue to increase due to the general aging of the population and expansion of state Medicaid programs. However, under the Balanced Budget Act, Triad's reimbursement from the Medicare and Medicaid programs was reduced in 1999 and 1998 and will be further reduced as some reductions in reimbursement levels are phased in over the next two years, although certain of the reductions will be reduced by the Refinement Act. The Balanced Budget Act has accelerated a shift, by certain Medicare beneficiaries, from traditional Medicare coverage to medical coverage that is provided under managed care plans. Triad generally receives lower payments per patient under managed care plans than under traditional indemnity insurance plans. With an increasing proportion of services being reimbursed based upon fixed payment amounts, where the payment is based upon the diagnosis, regardless of the cost incurred or level of service provided, revenues, earnings and cash flows are being significantly reduced. Net patient revenues related to Medicare and Medicaid patients were 38.8% and 41.8% of total net patient revenues for the years ended December 31, 1999 and 1998, respectively. Net patient revenues related to managed care plan patients were 32.7% and 27.0% of total net patient revenues for the years ended December 31, 1999 and 1998, respectively. Net patient revenues
Management believes that the impact of the ongoing governmental investigations of certain Columbia/HCA business practices and the related media coverage may have created uncertainties with physicians, patients and payers in certain markets. Such governmental investigation is described under Item I "Business - Governmental Regulation and Other Factors - Governmental Investigation of Columbia/HCA and Related Litigation."
The decline in revenue was due to several factors, including decreases in Medicare reimbursement rates mandated by the Balanced Budget Act which became effective October 1, 1997, which lowered reimbursement rates impacting 1998 revenues by approximately $17.0 million, continued increases in discounts from the growing number of managed care payers; managed care as a percentage of net patient revenues increased to 27.0% in the year ended December 31, 1998 compared to 26.0% during the year ended December 31, 1997, and the announced divestitures of hospitals in certain markets.
On a core (pro forma) basis, other operating expenses, as a percentage of net revenue, decreased to 21.1% from 23.0% for the year ended December 31, 1999 and 1998, respectively. This was primarily due to Triad reducing the use of outside contract services.
Although Triad's indebtedness will be more substantial than was historically the case for its predecessor entities, management expects that operations and working capital facilities will provide sufficient liquidity for fiscal 2000 and for the next several years.