In­vest­ment losses dog AHA

AHA’s in­come sees big drop in 2009

Modern Healthcare - - Front Page - Joe Carl­son

The Amer­i­can Hos­pi­tal As­so­ci­a­tion ramped up a few dis­crete spend­ing items in 2009 be­cause of the pitched bat­tle over health­care re­form, but of­fi­cials with the Chicago-based trade group say much of the ex­tra oomph will not be found on their lat­est fed­eral tax dis­clo­sure forms.

That’s be­cause the IRS doesn’t care much about cold din­ners, or week­end hours for salaried work­ers, or the stepped-up ef­fort by a work­force hit by lay­offs even as it sought to in­flu­ence the his­toric health­care re­form laws passed last March.

Rather, the pic­ture that emerges on the AHA’s pub­lic Form 990 is of an or­ga­ni­za­tion that saw far lower rev­enue than the year be­fore—a dip al­most ex­clu­sively at­trib­ut­able to in­vest­ment losses—and some growth in salaries, which com­bined for an 88% de­cline in the bot­tom line at the tax-ex­empt or­ga­ni­za­tion.

The AHA posted $2.7 mil­lion net in­come on $98.7 mil­lion in rev­enue in 2009, com­pared with $22.3 mil­lion in net in­come on $120.6 mil­lion in rev­enue in 2008. Those fig­ures equate to net profit mar­gins of 2.7% in 2009, com­pared with 18.5% the year be­fore.

Op­er­at­ing rev­enue was rel­a­tively flat, and op­er­at­ing ex­penses in­creased only mod­estly, leav­ing the move­ment in the AHA’s in­vest­ment port­fo­lio as the driv­ing fac­tor in the or­ga­ni­za­tion’s one-year dif­fer­ence in per­for­mance.

The AHA recorded a net loss on its port­fo­lio ac­tiv­ity in 2009, earn­ing just $58 mil­lion man- ag­ing se­cu­ri­ties that were orig­i­nally pur­chased for $62 mil­lion, cre­at­ing a $4 mil­lion loss, net of fees. That loss was par­tially off­set by $1.6 mil­lion in in­come from div­i­dends and in­ter­est, leav­ing the AHA to record a $2.4 mil­lion net loss on its in­vest­ment ac­tiv­ity for 2009.

The year be­fore, the AHA posted a $15 mil­lion profit on its sales of se­cu­ri­ties, earn­ing $69 mil­lion from in­vest­ments that were pur­chased for a to­tal of $54 mil­lion. That $15 mil- lion profit, com­bined with $4 mil­lion in div­i­dend and in­ter­est in­come, cre­ated a $19.4 mil­lion in­vest­ment wind­fall in 2008.

The dif­fer­ence be­tween the $19.4 mil­lion in­vest­ment profit in 2008 and the $2.4 mil­lion loss in 2009 tracked closely with the changes in the AHA’s bot­tom-line re­sults, where the group’s net in­come dropped by $19.6 mil­lion be­tween the years.

AHA Se­nior Vice Pres­i­dent and Chief Fi­nan­cial Of­fi­cer John Evans said that de­spite the re­al­ized losses on in­vest­ments in 2009, the AHA’s in­vest­ment port­fo­lio ac­tu­ally gained in value dur­ing the year. “Our to­tal re­turn was good, but the IRS only wants you to show your re­al­ized gains,” he said. “2009 was a very good year for us in terms of our in­vest­ment re­turns.”

Fac­tor­ing in all of the trad­ing ac­tiv­ity and the fluc­tu­a­tions in the val­ues of se­cu­ri­ties, the AHA’s in­vest­ment port­fo­lio was val­ued at $128 mil­lion at the be­gin­ning of 2009 and $138 mil­lion by the close of the year, ac­cord­ing to the bal­ance sheet in the AHA’s tax forms. At the be­gin­ning of 2008, how­ever, the to­tal port­fo­lio was val­ued at $182 mil­lion.

Look­ing at op­er­at­ing rev­enue, the 6% growth in mem­ber­ship dues rev­enue to $74 mil­lion was off­set by lower in­come from spe­cial projects on be­half of AHA mem­bers, con­fer­ences and pub­li­ca­tions, the tax forms say. Al­though AHA mem­ber­ship dues are based on hos­pi­tals’ op­er­at­ing ex­penses, the or­ga­ni­za­tion capped sin­gleyear in­creases at 2.75% in 2009.

Of­fi­cials didn’t of­fer a work­ing es­ti­mate for how much ex­tra the re­form bat­tle cost them in 2009, aside from sev­eral do­na­tions to re­form-re­lated groups.

“We didn’t have a spe­cific bud­get set aside for it. There is some di­rect cost we could add up, but it’s im­pos­si­ble to count the num­ber of hours that our staff spent,” said John Fi­nan, chair­man of the AHA board of trustees’ op­er­a­tions com­mit­tee, and pres­i­dent and CEO of Fran­cis­can Mis­sion­ar­ies of Our Lady Health Sys­tem, Ba­ton Rouge, La.

Much of the AHA’s purely po­lit­i­cal op­er­a­tions don’t ap­pear on the tax forms be­cause they’re han­dled by the Amer­i­can Hos­pi­tal As­so­ci­a­tion Po­lit­i­cal Ac­tion Com­mit­tee in Washington, which placed 31st in the nation in PACs that do­nated the most to po­lit­i­cal can­di­dates in 2009, ac­cord­ing to the Fed­eral Elec­tion Com­mis­sion.

In 2009, fed­eral fil­ings say, AHAPAC dis­trib­uted $852,491 in in­di­vid­ual con­tri­bu­tions to can­di­dates, two-thirds of whom were Democrats. The largest sin­gle do­na­tion of the year, for $15,000, went to the Demo­cratic Con­gres­sional Cam­paign Com­mit­tee.

Mean­while, per­son­nel costs grew at a healthy clip dur­ing the year, ex­pand­ing by 9% to $48.3 mil­lion in 2009, from $44.2 mil­lion in the prior year. Evans said in­creases in em­ployee med­i­cal ben­e­fit costs ac­counted for $1.6 mil­lion of the in­creases in per­son­nel costs, while salary in­creases and pen­sion plan pay­ments en­com­passed $1.3 mil­lion each.

The AHA paid 138 em­ploy­ees more than $100,000 in 2009, the tax forms say, com­pared with 144 in the prior year. Those ex­ec­u­tives in­cluded Pres­i­dent and CEO Richard Umb­den­stock, whose to­tal com­pen­sa­tion was $1.7 mil­lion in 2009 and $2.1 mil­lion in 2008.

Fu­ture tax forms won’t in­clude Se­nior Vice Pres­i­dent James Bent­ley and Vice Pres­i­dent of Strate­gic Com­mu­ni­ca­tions Richard Wade— paid $634,209 and $583,150, re­spec­tively, in 2009—be­cause they were laid off in Oc­to­ber 2009 along with two as­sis­tants. The AHA also laid off work­ers in 11 po­si­tions at its pub­lish­ing arm, Health Fo­rum, in 2009. The AHA paid about $4.6 mil­lion for em­ployee travel in 2009, about $1 mil­lion less than the year be­fore, and over­all func­tional ex­penses de­clined to $96 mil­lion from $98 mil­lion the year be­fore.


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