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7 of 10 Most Profitable Hospitals Are NFPs

News  |  By John Commins  
   May 04, 2016

"This is telling us that the taxing system may not be working properly if nonprofit hospitals are making a lot of profit and not necessarily putting it back into the community," researcher says.

Seven of the 10 most-profitable hospitals in the United States are nonprofit hospitals, each earning more than $160 million from patient care services, according to a study in Health Affairs.

"We were pretty surprised. I had no idea what hospitals would be the most profitable, and which were not," says study coauthor Gerard Anderson, professor Health Policy and Management at Johns Hopkins Bloomberg School of Public Health. "This is telling us that the taxing system may not be working properly if nonprofit hospitals are making a lot of profit and not necessarily putting it back into the community.

The study analyzed fiscal year 2013 for more than 3,000 acute care hospitals of which 59% were nonprofit, 25% were for-profit, and 16% were public. The study used net income from patient care services to measure profitability and left out profits from non-patient care activities such as investments, charitable contributions, tuition, and parking fees.

"We used Medicare cost reports; essentially the total revenues that they get from patient care and the total expenditure associated with patient care," Anderson says. "It is the only uniformly collected data that I know of on all hospitals in America. If you use general accounting principles, hospitals have a lot more flexibility to include or exclude costs."

By those measures, the most profitable hospital in fiscal 2013 was Gundersen Lutheran Medical Center, a 239-bed hospital in La Crosse, WI, that collected $302.5 million, or $4,241 per patient. In stark contrast, more than half of all hospitals examined in the study lost a median $82 from patient care services.

In general, the study found that hospitals that were part of a health system were more profitable, and Anderson says that likely because they can leverage higher payments from commercial plans, which in turn pass those costs onto their enrollees.

"They are using that to raise prices and accumulate surpluses and some of them are using this surplus to buy more hospitals," he says.

Hospitals with the highest price markups earned the largest profits. Rural hospitals, those with 50 or fewer beds and major teaching hospitals tended to lose more than urban hospitals, larger hospitals and those with minor or no teaching component. The three for-profit hospitals on the Top 10 list are owned by HCA.

"When you go to a specific hospital you are going to that hospital for your care. If that hospital is making a profit, you are not getting all of the services that you are paying for," Anderson says.

In a statement on its website, Gundersen CFO Dara Bartels said the study "does not reflect our costs, as an integrated health system, for the care we provide in a multi-state, largely rural region with a high Medicare patient mix, and does not analyze data on quality of care."

"The portion of the cost report the authors used excludes administrative and shared costs per Medicare rules, with results varying between organizations," Bartels said. "We would rank much differently if these costs were considered. Analyzing Medicare cost reports of a single care center may have been relevant 20 years ago, but using the same methodology now for an integrated health system network isn't constructive."

Bartels said a study by the Dartmouth Atlas showed that Gundersen has the lowest cost of care per Medicare beneficiary in the country.

"We are also a national leader in providing care in the last two years of life by spending less per patient episode of care; shortening patients' length of stay in the hospital; having fewer patient complications and making fewer patient safety errors," Bartels said. "We are dedicated to high-quality, affordable care that balances inpatient and outpatient needs and reinvests earnings into health care programs, services and facilities in the communities we serve."

Anderson says "all of that is taken into account in the analysis."

"If they have a lot of Medicaid then their revenues are going to be less," he says. "It is true that we are not looking at whether or not they provide good quality care. We don't claim to be talking about quality at all. But we have taken into account all the factors that would explain why you are a profitable or non-profitable hospital with respect to patient care."

According to the study, the 10 U.S. hospitals with the highest profit from patient care services are:

  1. Gunderson Lutheran Medical Center, Nonprofit (La Crosse, WI) Profit: $302.5 million
  2. Sutter Medical Center, Nonprofit (Sacramento, CA) Profit: $271.9 million
  3. Stanford Hospital and Clinics, Nonprofit (Palo Alto, CA) Profit: $224.7 million
  4. Norton Hospital, Nonprofit (Louisville, KY) Profit: $211.2 million
  5. Medical City Dallas Hospital, For profit (Dallas, TX) Profit: $210.3 million
  6. Swedish Medical Center, For profit (Englewood, CO) $192.5 million
  7. Hospital of the University of Pennsylvania, Nonprofit (Philadelphia, PA) Profit: $184.5 million
  8. Methodist Hospital, For profit (San Antonio, TX) Profit: $172.4 million
  9. Sacred Heart Medical Center, Riverbend, Nonprofit (Springfield, OR) Profit: $171.2 million
  10. Carle Foundation Hospital, Nonprofit (Urbana, IL) Profit: $163.5 million

Anderson says the communities served by these high-profit hospitals should re-examine their relationships because these communities are footing the bill for higher healthcare costs but they're not collecting taxes on it.

"A lot of the communities where these hospitals are located are having financial difficulties," he says. "The hospitals, which are making money, aren't contributing to the financial reserves of that community. They are obviously employing people, but they are earning substantial profits and not paying any of those profits to the communities."

While the majority of the hospitals were collecting revenues on a fee-for-service model in 2013, Anderson says it's not clear if they can continue to reap handsome profits when the fee structure moves into value-based purchasing.

"That is one of the reasons why we did this study," he says. "We wanted to provide a baseline as to what are the hospitals doing well before value-based purchasing comes on, and then seeing if the same hospitals are able to respond to the new environment. In the old environment, the more you did the more you got paid. In the new environment, the better quality you provide the more you are going to get paid. It is a fundamental shift in payment and the question is will the same hospitals prevail."

Other hospitals on the list also complained that their profits were taken out of context.

Carle Foundation Hospital spokeswoman Jennifer Hendricks-Kaufmann says "the report considers only one year and omits important details like the system's losses, expenses and one-time government payments that occurred in 2013 and that omission makes Carle appear more profitable than the organization actually was."

"It's a significant omission and the authors admit there are factors they could not accurately address. We strive for a 2% to 3% margin, which we reinvest into patient care, including $44 million in charity care at cost to more than 27,000 people in 2013 alone. As a non-profit our community benefits, not shareholders."

Susan Phillips, Penn Medicine's senior vice president for Public Affairs, says the "excess revenue derived from clinical care at HUP is used to subsidize initiatives across the organization, including supporting and improving critical programs like a Level I trauma center and neonatal intensive care units, as well as funding biomedical research activities and education and training efforts in the Perelman School of Medicine."

PeaceHealth spokeswoman Marcy Marshall says the report "does not reflect how we reinvest the dollars back into our community."

"Our mission calls for us to reinvest our revenues back into our communities' health needs," Marshall says. "Each year consistent with the expectations that our community has for us as a nonprofit, these revenues are used to fund critical health and health improvement programs, capital investments and community benefit programs."

For example, in 2013 PeaceHealth investments totaled more than $128.3 million and included a $10 million expansion of the behavioral health services; $22 million for new diagnostic imaging and surgical technology, and $16 million to improve access to primary care and specialty care services.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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