Ho­pi­tals post big prof­its in 2012

Hos­pi­tal profit mar­gins hit high­est level in decades

Modern Healthcare - - FRONT PAGE - Ashok Selvam

Com­mu­nity hos­pi­tals col­lec­tively en­joyed a record-break­ing mar­gin in 2010 with more than $52.9 mil­lion in to­tal prof­its, ac­cord­ing to the Amer­i­can Hos­pi­tal As­so­ci­a­tion. The 7.2% net mar­gin on $730.9 bil­lion in net rev­enue, tal­lied in the 2012 AHA Hos­pi­tal Sta­tis­tics guide re­leased last week, was the high­est in decades. The re­sults com­pare with $34.4 bil­lion in profit in 2009 for a 5% profit mar­gin on $690.5 bil­lion in net rev­enue. The fig­ures came from 4,985 AHA mem­bers sur­veyed by the Chicago-based group.

“We’re mildly sur­prised, not overly sur­prised,” said Jim Le­buhn, a se­nior di­rec­tor in the U.S. pub­lic fi­nance group for Fitch Rat­ings in Chicago. “What you’re see­ing is the in­dus­try is re­ally po­si­tion­ing it­self for fur­ther im­ple­men­ta­tion of health­care re­form.”

While pre­par­ing for de­clin­ing Medi­care and Med­i­caid re­im­burse­ments, hos­pi­tal of­fi­cials and Le­buhn said the record-break­ing numbers show that hos­pi­tals are stream­lin­ing ex­penses and cut­ting costs, although over­all ex­penses ac­tu­ally climbed by 3.3% in 2010, or $21.8 bil­lion. Hos­pi­tals spent $678 bil­lion in 2010 ver­sus $656.2 bil­lion the year be­fore.

The in­creased mar­gins mean hos­pi­tals are spend­ing less on sup­plies, work­ing with doc­tors to bet­ter de­ter­mine what equip­ment is needed for hos­pi­tals, us­ing more generic drugs and tight­en­ing ad­min­is­tra­tive costs, said Caro­line Stein­berg, the AHA’S vice pres­i­dent of trends anal­y­sis. “Hos­pi­tals are re­ally shoring up for tough times ahead.”

The cost of pay­rolls and ben­e­fits, how­ever, con­tin­ues to rise, in­creas­ing to $348.1 bil­lion in 2010, com­pared with $338 bil­lion the year be­fore. Hos­pi­tals spent about the same per­cent­age of their bud­gets on la­bor-re­lated costs; pay­rolls and ben­e­fits ac­counted for 51.3% of bud­gets in 2010, com­pared with 51.5% in 2009.

Stein­berg warned that the record-break­ing profit mar­gin did not pro­vide ob­servers with a full fi­nan­cial pic­ture, sug­gest­ing that con­di­tions weren’t so rosy for hos­pi­tals. “This data only pro­vides a snapshot of the fi­nan­cial state in 2012, as the land­scape has changed dra­mat­i­cally over the last year,” Stein­berg said.

She pointed out that 23% of hos­pi­tals sur­veyed lost money in 2010. She also stressed that the re­sults re­flect fi­nan­cial con­di­tions in 2010, and she said fed­eral stim­u­lus money flow­ing to hos­pi­tals through Med­i­caid pro­grams has since dried up.

Wil­liam Pe­tas­nick, pres­i­dent and CEO of 500-bed Froedtert Hos­pi­tal in Mil­wau­kee, said he shares Stein­berg’s view. He said out­lier hos­pi­tals that turn high prof­its are skew­ing the av­er­ages. Hos­pi­tals in the Midwest, such as Froedtert, are hurt­ing from de­clin­ing Medi­care and Med­i­caid re­im­burse­ment. “Un­em­ploy­ment numbers are still high and long-term un­em­ploy­ment, es­pe­cially,” Pe­tas­nik said. “Here in the Midwest, we’re not see­ing much change in that, and that’s all driv­ing Med­i­caid en­roll­ment.”

The AHA also re­leased its lat­est re­port on un­com­pen­sated care. That showed com­mu­nity hos­pi­tals de­liv­ered $39.3 bil­lion in un­com­pen­sated care in 2010, a $200 mil­lion in­crease over 2009. The 2010 amount rep­re­sents 5.8% of the ex­penses in 2010. That breaks down to about $7.9 mil­lion per hos­pi­tal in 2010, up from $7.8 mil­lion per hos­pi­tal in 2009 when a larger num­ber of hos­pi­tals—5,008—were sur­veyed. In 2009, un­com­pen­sated care rep­re­sented 6% of the ex­penses that year.

Un­com­pen­sated care is the dol­lar amount of char­ity care for the med­i­cally indi­gent and unin­sured com­bined with the amount of hos­pi­tals’ bad debt.

Le­buhn said Fitch ex­pected to see the slight in­crease in un­com­pen­sated care, but doesn’t ex­pect to see dras­tic in­creases in the fu­ture, un­der the be­lief the econ­omy has sta­bi­lized and un­em­ploy­ment numbers will con­tinue to de­crease. The U.S. Bureau of La­bor Sta­tis­tics re­leased numbers last week show­ing the un­em­ploy­ment rate at 8.5%, the low­est in three years.

Hos­pi­tals should be praised for im­prov­ing their ef­fi­ciency and ac­com­plish­ing more with fewer staff mem­bers, Le­buhn added. How­ever, it’s un­re­al­is­tic to ex­pect record profit mar­gins to con­tinue as fed­eral re­im­burse­ment con­tin­ues to fall, he said. “As we move into the full im­ple­men­ta­tion of re­form, I think that again, you’ll see those mar­gins com­pressed.”

When those de­clines will hap­pen and how steep they will be is dif­fi­cult to fore­cast, Le­buhn said, adding that op­er­at­ing rev­enue may be the first to fall. Com­mu­nity hos­pi­tals re­ported $717.7 bil­lion in op­er­at­ing rev­enue for $39.7 bil­lion in op­er­at­ing profit in 2010. That makes for a 5.5% op­er­at­ing mar­gin, up from 4.4% in 2009 when op­er­at­ing rev­enue was $686 bil­lion and op­er­at­ing profit was $29.9 bil­lion. The 2010 op­er­at­ing mar­gin also was the high­est in decades.

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