May 3, 2016; Chicago Tribune
A recent study published in the journal Health Affairs analyzed 2013 hospital income from patient care, omitting revenue from other sources such as student tuition, donations, and investments. Data were obtained from federal sources and included information from about 3,000 facilities, just under 60 percent of U.S. hospitals.
Fifty-five percent of hospitals lost money on each patient they served in 2013, according to the study. One-third of hospitals had net profit of less than $1,000 per discharged patient. Only 12 percent of the hospitals studied received net profits of more than $1,000 per patient when payments from insurers, government, and the patients themselves were included.
What makes a hospital’s patient care profitable? Seven of the 10 most profitable hospitals (each with net profits of more than $163 million) are nonprofits, but tax exemption is only one consideration, and not necessarily determinative of a hospital’s profitability. The study’s abstract points to several influencing factors:
Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability than hospitals that did not have these characteristics.
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Cash-strapped governments are looking to nonprofit hospitals as a potential revenue source, with some believing that the profitability of some argues against state and/or local tax exemption for all. Laurel Prussing, mayor of Urbana, Illinois, said, “We need to question this whole idea of what not-for-profit means. This is a highly profitable business that manages to not pay taxes.”
Hospitals and their advocates point out that tax-exemption involves community benefit through services as diverse as reinvestment in medical technology and training to charity care and community education. Services like these require resources, including those earned through profitable patient care.
The Affordable Care Act’s influence on hospital mergers and acquisitions is contributing to a massive consolidation of multibillion-dollar integrated healthcare systems including hospitals, medical practices and clinics, and even health system-owned insurance companies. A one percent profit margin in a $5 billion healthcare system is $50 million, which is a lot of money. However, that same hospital system needs $1.2 billion, or the equivalent of 24 years of $50 million in annual profits left untouched, to maintain a 90-day cash reserve in its budget.
The study demonstrates that a few hospitals make significant profits from patient care, some make a little, and more than half actually lose money. Policy makers and advocates distracted by a few big numbers may cause a lot of damage to the majority of hospitals whose sustainability is at risk.—Michael Wyland