The average per capita cost of healthcare services covered by commercial insurance and Medicare grew 5.58% over the 12 months ending in May.
The slight uptick in cost growth ends what had been 11 consecutive months of deceleration, as measured by the Standard & Poor's Healthcare Economic Indices.
Even with May's uptick in cost growth from the all time low of +5.37% posted in April, the rate of cost growth remains 3.16 percentage points below the highest rate for the Composite index, which was up 8.74% over the 12-months ending May 2010.
A further breakdown for the 12-month period ending in May 2011 shows that annual claims costs covered by commercial insurance increased by 7.35%, in the S&P Healthcare Economic Commercial Index. Medicare claim costs rose 2.64%, in the S&P Healthcare Economic Medicare Index. The Commercial and Medicare Indices are respectively 0.25 and 0.16 percentage points above their April annual rates.
"Over the past 12-15 months, the story has been a moderation in the rate of increase in healthcare cost, as indicated by the decelerating growth rates across the S&P Healthcare Economic Indices," David M. Blitzer, Chairman of the Index Committee at S&P Indices, said in a media release. "In fact, the Composite, Medicare and Hospital Indices all posted record low annual rates in their six-year history with April's report. Since May's data covers only one month, we need more time to determine if the trend is changing or if this is a temporary blip, like we saw in January.
Cost growth for commercial plans continues to outstrip cost growth for Medicare despite Medicare's older, sicker population and higher use of services.
"Unlike Medicare, throughout the past year the Commercial Index has remained well above its low annual growth rate of +6% posted in September 2005. Its May 2011 reading was +7.35%.," Blitzer said.
Lower volumes may be driving the deceleration in cost growth.
"In terms of what we are hearing from market participants, both office visit and hospital admission trends are relatively low, which may be a reflection of the overall consumer pullback in medical treatment," Blitzer said. "Furthermore, many participants have indicated that providers are trying to address healthcare reform and are looking for ways to control costs. If true, this combination certainly would be a contributory factor to the moderation in cost we have witnessed since early 2010."
S&P's Hospital and Professional Services Indices also reported increases of 5.08% and 5.91% respectively, slightly higher than the respective +4.85% and +5.71% posted in April.
Even with the deceleration, healthcare costs grew at nearly double the 3.4% growth in overall inflation as measured by the Consumer Price Index for the same 12-month period ending in May, Bureau of Labor Statistics data show.
The S&P Healthcare Economic Indices estimate the per capita change in revenues accrued each month by hospital and professional services facilities for services provided to patients covered under traditional Medicare and commercial health insurance programs. The annual growth rates are determined by calculating a percent change of the 12-month moving averages of the monthly index levels versus the same month of the prior year, S&P said.
Baystate Health said it will eliminate 354 jobs from its payroll --- including 169 filled positions -- to help offset financial woes that the Springfield, MA health system blames mainly on lower patient volumes and reduced Medicaid reimbursements.
Baystate projects a $25 million budget shortfall in 2011 growing to $54 million in 2012 unless expenses are reduced.
“At Baystate Health, we embrace changing models of patient care and health coverage expansion – however, these changes are not based on a properly funded plan,” Mark R. Tolosky, president/CEO of private, not-for-profit Baystate Health, said in a media release. “Massachusetts has expanded and enhanced healthcare for our residents which we applaud – but the Commonwealth is not paying for these commitments.”
Tolosky said Massachusetts healthcare providers are faced with freezes in reimbursements for patient care by Medicaid and other state programs while medical inflation is rising at 3% - 4% annually, and that Baystate is paid less than the cost of the care it provide.
The three hospitals of Baystate Health -- Baystate Medical Center in Springfield, Baystate Franklin Medical Center in Greenfield, and Baystate Mary Lane Hospital in Ware -- were underpaid $26.5 million by the state government for the cost of care for Medicaid patients in 2010. Medicaid patients represent 26% of the patient population at Baystate’s hospitals, resulting in significant financial loss for care of these patients.
With declining reimbursements, Baystate and other healthcare providers throughout Massachusetts are seeing patients hold back on medical care for reasons that include increased out of pocket costs and concern about time away from their jobs, all which have led to lower patient volumes.
Baystate Medical Center will bear the brunt of the layoffs, with 158 positions eliminated. Baystate officials declined to say what staffing areas were targeted for cuts, which will take effect Aug. 19. They said the cuts would not impact patient care. The 354 funded payroll cuts represent 3.5% of the 10,064 positions at Bayhealth.
Adventist Health has restructured its regional operations to create a new five-hospital network in northern California, the Roseville, CA-based health system has announced.
The newly named Northern California Network includes:
Frank R. Howard Memorial Hospital in Willits;
St. Helena Hospital Center for Behavioral Health;
St. Helena Hospital Clear Lake;
St. Helena Hospital Napa Valley;
Ukiah Valley Medical Center, in Ukiah,
The hospitals' service sites
Scott Reiner, executive vice president/COO and board chairman of the St. Helena Hospital region, said restructuring will strengthen operations across the region, as the five hospitals work toward a coordinated business model.
Terry Newmyer, president/CEO of the St. Helena Region, will assume the additional duties of vice president of Adventist Health and president/CEO of the Northern California Network. Before being appointed as president and CEO of the St. Helena region in 2009, Newmyer was senior vice president of business development for the Florida division of Adventist Health System and the chief development officer for the Florida Hospital Foundation.
"Terry's leadership of the St. Helena hospitals has been exemplary and their successes are well-documented,"" Reiner said. ""His guidance over the Northern California Network will allow us to expand services to communities throughout the region. Through business collaboration and care coordination, we will ensure patients experience excellence across the continuum of care."
Newmyer will lead the searches underway for the CEO positions at HMH and UVMC. Bill Wing, senior vice president of Adventist Health, will continue to chair the boards for HMH and UVMC.
Adventist Health is a faith-based, not-for-profit integrated healthcare delivery system with nearly20,000 employees in California, Hawaii, Oregon and Washington. The system includes 17hospitals with more than 2,500 beds, more than 130 physician and rural health clinics, 14 home care agencies and four joint ventureretirement centers.
The Medical Group Management Association says its survey shows that most practices want to become patient-centered medical homes, and finds challenges.
Nearly 70% of 341 physician leaders who replied to MGMA’s Patient Centered Medical Home Study: 2011 Report based on 2011 Data said were already in the process of transforming or interested in becoming a PCMH while more than 20% were accredited or recognized as a PCMH by a national organization.
The nationwide survey, conducted in April for Englewood, CO-based MGMA, found the 36% of practices interested in becoming a PCMH were in family medicine, followed by multispecialty practices with primary and specialty care (more than 30%), and pediatrics (more than 10%).
The study found that the top five most common processes practices engaged in as part of the PCMH model were:
Assigning patients to a primary care clinician (80%)
Addressing patients' mental health issues or concerns and referring them to appropriate agencies (70%)
Exchanging clinical information electronically with pharmacies (70%)
Involving patients and family members in shared decision making (70%)
Maintaining chronic disease registries (45%)
The study also indentified the top five challenges cited by PCMHs during their transformation:
Establishing care coordination agreements with referral physicians (50%)
Financing the transformation to PCMH (40%)
Coordinating care for high-risk patients (40%)
Modifying or adopting an EHR system to support PCMH related functions (40%)
Projecting financial effects (practice revenue, costs, etc.) of the transformation to PCMH (35%)
For existing PCMHs, 91% of study respondents said that they want one set of standards for PCMH evaluation. The majority of existing PCMHs were recognized through the National Committee for Quality Assurance; 70% of these reported earning Level 3 NCQA recognition. The accreditation or recognition process took the majority of respondents, on average, one year to complete.
Physician-owned practices represented less than 55% of accredited or recognized PCMHs compared to less than 25% for hospital-owned medical practices. Almost 45% of the respondents accredited or recognized as a PCMH were family medicine practices followed by multispecialty practices with primary and specialty care (almost 35%).
The survey also showed that as many as 75% of existing PCMHs reported they were participating in a pilot or demonstration. Ninety percent of pilot participants also were receiving fee-for-service payments from payers as part of the pilots and only 57% indicated receiving management fees.
In the span of an hour or so on Tuesday, Scranton, PA's hospital alignment underwent a seismic shift.
First, Community Health Systems, Inc. -- which acquired Scranton's Regional Hospital in April -- announced Tuesday morning that it will buy the nearby nonprofit Moses Taylor Health Care System. About one hour later, Geisinger Health System confirmed local media reports that it was acquiring the Community Medical Center, located near the CHS hospitals in Scranton.
CHS acquires Moses Taylor Health Care System "We are celebrating today. It's a great day for our community. The community is going to benefit. Our patients are going to benefit, and it's a tremendous stimulus in a market that has been long-identified as having to change," Moses Taylor CEO Karen Murphy, RN told HealthLeaders Media in an interview.
Murphy said the purchase price of the CHS acquisition would not immediately be made public because due diligence is still underway and the deal is not expected to be completed until 2012.
She said, however, that for-profit CHS will invest $60 million over five years in facility and technology upgrades for the health system, in addition to the $60 million the Franklin, TN-based for-profit hospital chain has committed for Regional Hospital.
"Our market is we have three acute-care hospitals within three city blocks. Our market just couldn't sustain the same business model," Murphy says. "We began a year ago to investigation possibilities. We were looking for a partner that would be able to provide capital and improve the quality and cost of healthcare of our community. With the collaboration between Scranton Regional and Moses Taylor, we are going to look at how we can increase quality and efficiency."
The health system includes the flagship 217-bed Moses Taylor Hospital in Scranton, the 25-bed Mid-Valley Hospital in Peckville, PA, and Physicians Health Alliance Inc. If the deal passes regulatory review, Moses Taylor will join the 13 hospitals in central and eastern Pennsylvania that are now affiliated with Franklin, TN-based CHS.
"The acquisition of Moses Taylor Health Care System will provide a compelling opportunity to expand our operations in northeast Pennsylvania, CHS Chairman/President/CEO Wayne T. Smith said in a media release.
"We look forward to working with the system's outstanding physicians and employees, who are part of a century-long tradition of providing high-quality, compassionate care for patients. We also look forward to new opportunities for collaboration, sharing of best practices, resources and expertise as we continue to expand and enhance the health services available in this region."
Moses Taylor and Regional will each continue to offer healthcare services on their respective campuses while the two hospitals work collaboratively to plan how they will deliver clinical services for the future. "Our agreement provides for a long-recognized community need — a consolidated healthcare delivery system," Murphy said.
The proceeds of the sale will be used to fund employee pension plans, retire the health system's liabilities and debt, and establish a nonprofit foundation to improve the health and well-being of the community.
The agreement assures:
Active employees will be hired into their same positions, at the same rate of pay and with their seniority recognized for a minimum of one year post-closing.
The health system providers will continue to provide charity care and participate in the Medicare and Medicaid programs.
A local board of trustees will be established in each of the organizations.
Moses Taylor will continue to participate in its residency and fellowship programs and will continue to support The Commonwealth Medical College.
CHS is one of the largest publicly-traded hospital companies in the nation and specializes in operating 133 acute care hospitals in non-urban and mid-size markets throughout 29 states. The announcement marks the completion of a 12-month exploration process.
Geisinger and Community Medical Center sign definitive agreement
Also Tuesday morning, not-for-profit Community Medical Center announced that it will merge and integrate into not-for-profit Geisinger.
"This has been a conscientious and deliberate decision, and we explored a number of options before our board unanimously voted to approve merger and integration into Geisinger," Robert P. Steigmeyer, CEO/president of CMC, said in a media release. "It was important for CMC to choose a quality-focused health system with proven success that mirrors our own charitable mission, values and standards of care."
As with CHS/Moses Taylor deal, Geisinger and CMC officials would not disclose the value of their merger. However, Danville, PA-based Geisinger said it would invest $158.6 million over seven years to enhance clinical programs, increase physician recruitment, expand and improve facilities, and implement new information systems—including Geisinger's electronic health record technology.
"This new relationship will allow the merged organization to build programs, grow services, improve health outcomes and demonstrate value," said Geisinger President/CEO Glenn D. Steele Jr., MD. "Together, we will enhance our ability to provide superior care and service for all the residents of Scranton and the surrounding area."
No layoffs for CMC's workforce are expected with the merger. The medical center will maintain its open medical staff that includes both employed and independent, community physicians. Steigmeyer will remain president/CEO at CMC, and two members of CMC's Board of Directors — Chair Jeff Jacobson and Vice Chair Virginia McGregor — will be added to the Geisinger Board of Directors.
The annual U.S. News & World Report hospital rankings generate significant marketing power for institutions that earn high honors. Just ask leadership at The Johns Hopkins Hospital in Baltimore.
For the 21st straight year, Hopkins has been named the nation's top hospital in U.S. News & World Report's Best Hospitals 2011-2012, placing first in five specialties and in the top five in 10 other categories.
"No matter how historic or iconic, a building is merely bricks and mortar. It's the dedicated people within that building who make it truly great," Edward D. Miller, MD, dean and CEO of Baltimore-based Johns Hopkins Medicine, and Ronald R. Peterson, president of The Johns Hopkins Hospital and Health System and executive vice president of Johns Hopkins Medicine, said in a joint statement.
"It's our caring nurses and staff, the school of medicine's faculty physicians, residents and fellows, and our many community physicians, all of whom dedicate themselves daily to providing the finest care to their patients. You are at the center of our continual search for better treatment, better answers and better discoveries. Our Hospital is exceptional because our people are exceptional."
The other Top Five finishers on the magazine's Honor Roll include at No. 2 Massachusetts General Hospital in Boston; No. 3 Mayo Clinic in Rochester, MN, No. 4 Cleveland Clinic; and No. 5 Ronald Reagan UCLA Medical Center in Los Angeles.
"Our purpose is to heal humankind, one patient at a time," said David Feinberg, MD, president of the UCLA Health System and UCLA associate vice chancellor for health sciences. "While we are pleased with this recognition, what really drives us is ensuring that every patient that comes through our doors gets care that is compassionate, safe, of the highest quality, and delivered with dignity and respect."
The 17 hospitals on the Honor Roll are picked from more than 5,000 hospitals in 94 metropolitan areas, and must rank at or near the top in at least six of the 16 specialties identified by U.S. News.
The latest rankings, issued Tuesday, showcase 720 hospitals, each of which is ranked among the country's top hospitals in at least one medical specialty and/or ranked among the best hospitals in its metro area.
"These are referral centers where other hospitals send their sickest patients," said Avery Comarow, U.S. News Health Rankings Editor. "Hospitals like these are ones you or those close to you should consider when the stakes are high."
The data used to measure the hospitals include death rates, patient safety, and procedure volume. Responses to a national survey, in which physicians were asked to name hospitals they consider best in their specialty for the toughest cases, also were factored in, U.S. News said.
"These are hospitals we call 'high performers.' They are fully capable of giving most patients first-rate care, even if they have serious conditions or need demanding procedures," Comarow said. "Almost every major metro area has at least one of these hospitals."
While popular with consumers and coveted among hospital marketers, the U.S. News rankings have generated questions about the objectivity of measures. In a study published in last year in the Annals of Internal Medicine, a Cleveland physician said the rankings were based on reputations that did not necessarily correlate with objective quality.
"I was thinking that if we did professional football this way, we would just say let's give the Super Bowl trophy to the Dallas Cowboys without them playing any games because they have a national reputation for being a good team," Ashwini Sehgal, MD, wrote. "I think the main message . . . is that the rankings are not really good measures of quality of care. They are simply measures of national reputation."
Federal auditors want the state of Louisiana to pay back $13.6 million that may have been improperly paid to primary care physicians to bolster rural healthcare in the years after Hurricane Katrina.
The audit of the Louisiana Department of Health and Hospitals Bureau of Primary Care & Rural Health found widespread noncompliance with the terms of a $50 million Professional Workforce Supply Grant.
The grant offered one-time payments to physicians that could be used for practice-related expenses, including paying off student loans, offsetting malpractice premiums, and relocation expenses. The incentives were designed to entice them to practice medicine for at least three years in greater New Orleans area in the years after the catastrophic August 2005 hurricane.
The Office of Inspector General review, however, found that many physicians did not complete the terms of their three-year contracts, were working at ineligible sites, did not work full time, and in at least one instance, may not have even practiced medicine.
A sample review by the Department of Health and Human Services' Office of the Inspector General of 100 practitioners who received grant money found that only 33 of the physicians were in compliance with the requirements of the federal grant.
The 67 who were not in compliance received more than $3.1 million.
Based on that sample, OIG estimated that from March 2007, through January 2009 the Bureau of Primary Care & Rural Health paid at least $13.6 million of federal grant funds to an estimated 509 practitioners who were not in compliance with the grant requirements.
"These errors occurred because the bureau did not follow its existing policies and procedures or did not have adequate policies and procedures to ensure that its contracts with practitioners obligated them to meet the 3-year service requirements, that practitioners were monitored for compliance with the Federal grant requirements, and that corrective action was taken for practitioners not in compliance," OIG said in the audit.
OIG recommended that Louisiana refund to the federal Centers for Medicare and Medicaid Services the more than $13.6 million paid for noncompliant grants, implement adequate safeguards to prevent a further occurrence, and take corrective action against physicians who were noncompliant after the audit period.
In a written response to the OIG findings, Gerrelda Davis, director of the Bureau of Primary Care & Rural Health, attributed much of the problem to "human error" a small staff, and the sheer workload in the months after the hurricane. "Due to the large amount of contracts being completed during that time frame, Bureau staff responsible for completing contracts was as diligent as possible with the limited number of staff assigned to process contracts," Davis said.
Riding with that recovery, says Ron Seifert of the Hay Group, is the expectation that healthcare organizations that want to keep quality staff should be prepared to pay more.
Seifert says a Hay Group survey shows planned median base salary increases of 3% this year for employees of large integrated health systems, up from a 2.4% increase in 2010.
“One of the things driving this is the conservatism of prior years,” Seifert tells HealthLeaders Media. “A little bit of angst gets built up in the system. There is a backlog of need for compensation adjustments. We are finding that healthcare organizations are recognizing that need and feeling the need to address it.”
Tellingly, independent community hospitals are reporting lower median base salary increases of 2.3% in 2011, Seifert says. That could make recruiting and retention efforts all the more difficult.
“This is a reflection of those organizations still operating in fairly challenging situations,” says Seifert, Hay Group’s healthcare sector vice president and executive compensation practice leader. “It’s not that integrated health systems are doing that much better, but they are a little further along in their journey and they have a stronger position in their negotiations and performance and success in creating a fully integrated care environment. Community hospitals don’t have that leverage. They will run the risk of not being able to recruit and retain the best and the brightest, at a time when they need to be offering a compelling value proposition to their employees.”
Oddly, the exact opposite trend is developing this year for senior leadership compensation. CEOs at not-for-profit integrated systems received a median 4% hike in base salary for 2010, while independent hospital CEOs saw an increase of 5%. The variation in total cash compensation (base salary plus annual incentives) is even wider in 2011: CEOs at integrated systems saw an increase of 3.1%, while independent hospital CEOs saw an increase of 6% in total cash.
“I would read that as a very quirky statistic. I would interpret that as an exaggeration of that pent up demand,” said Seifert, adding that hospital boards understand that the skills required to lead complex organizations like hospitals or health systems come at a premium.
Community hospitals in particular are loosening the purse strings. “They paid less than their counterparts in the integrated systems in prior years and in light of the current environment they really can’t afford executive turnover. We saw them making bolder adjustments, generally speaking.”
Boards and trustees are also warming to the idea of long-term incentive pay for senior executives. The Hay Group 2011 survey found that 79% of not-for-profit integrated health systems still offer annual incentive plans, but that number has fallen from 89% in 2007. Meanwhile, the use of long-term incentive plans among integrated systems has increased from 14% in 2006, to 25% in 2011.
“This is not an executive-driven change. It is a strategic shift in the thinking of boards and trustees,” Seifert says.
“These organizations are making significant investments now, whether it’s through their IT structures or their integrated network of physicians and ambulatory surgical centers,” he says. “These investments are not things that pay off in one year. These organizations are looking to the future. They have grappled with the management on a year-to-year basis and what these boards are recognizing is that an annual incentive plan doesn’t measure transformation.”
And while it wasn’t covered in the Hay Group survey, Seifert says healthcare senior leaders better get used to public scrutiny of their compensation. “Don’t expect it to wane until the economy picks up,” he says. “The average person can’t appreciate how much value an executive brings to an organization in a way that would cause them to be paid $400,000 or $500,000. It is something we could not explain to them no matter how much logic we use.”
Mergers and acquisitions in the healthcare industry surged in the second quarter of 2011, setting a pace to break all previous records in the sector as measured by dollars, according to Norwalk, CT-based Irving Levin Associates, Inc.
In the second quarter of 2011, a total of $73.5 billion was spent to finance 243 mergers and acquisitions in the healthcare industry, up 44% from the $51.1 billion spent in the first quarter of 2011, and up 61% from the $45.7 billion spent in the second quarter of 2010.
Medical devices ($33.1 billion), pharmaceuticals ($27.4 billion), biotechnology ($4.9 billion), and E-health ($639 million) accounted for $66.1 billion of the mergers and acquisitions in the second quarter.
Sanford Steever, editor of The Health Care M&A Report told HealthLeaders Media in an interview that the pace of mergers and acquisitions suggests that healthcare still remains a fragmented industry.
"In pharma and biotech in particular, there are a lot of drugs facing patent cliffs right now -- 2012 is going to be a horrendous year for some of the big drug companies," Steever says. "If they can't develop new blockbusters internally, they are going to try to buy them by acquiring biotechs. At the other end of the spectrum some have glommed on to the 'if-you-can't-beat-them-join-them' bandwagon and they're buying generic drug companies."
Steever says drug companies feel the need to diversify. "With medical devices, for them there is definitely a spurt in technological innovation.
Companies, particularly in orthopedics, are trying to get complementary technologies and hopefully get cheaper so the products can be cheaper because Medicare often contracts and says we are only going to pay so much for an implant and no more," he says.
The remaining $7.3 billion was accounted to mergers and acquisitions of providers, including hospitals ($3.5 billion), managed care ($1.6 billion, long-term care ($985 million), and physician practices ($416 million). Steever attributes a lot of the activity directly to healthcare reform.
"It's accelerating as hospitals are trying to build up their accountable care organizations."
"So," he said, "I am seeing far more deals involving hospitals acquiring physician groups to meet the needs of the ACOs. Hospitals definitely want to beef up their local and perhaps regional provider networks. They see strength in numbers and you can get efficiencies and economies of scale."
Managed care companies are also anticipating the effect of healthcare reform and attempting to diversify, Steever says. "That is one area that has been thrown into confusion by the implications of healthcare reform," he explained. "You are getting a couple of deals where managed care companies buy other managed care companies. I am seeing more instances of managed care companies diversifying their risk by buying into other sectors. Some are in sectors of technology like E-health, and others are in areas like retail outpatient workers' comp clinics. They're looking to buy services that don't rely necessarily on a managed care model."
Steever says the only thing that could slow down the pace of the mergers and acquisitions is if the federal government defaults. "That is driving people nuts on many fronts," he says. "We should have this settled in the next week or so, but stuff like that is exactly what tends to slow up activity. People aren't sure what their revenues are going to be."
It was the same scenario in 2010 as Congress wrangled with the healthcare reform bill. "The acquisition activity was impossible to predict. It was very slow," Steever says. "Once healthcare reform passed it really picked up. That is because people finally figured that we know we have what our revenues are going to look like. That means we can place a valuation on companies that want to buy or sell."
The average return on investment for a sample group of nonprofit healthcare organizations in fiscal year 2010 was 10.9%, a study shows.
The 2011 Commonfund Benchmarks Study Healthcare Organizations Report found that the 90 nonprofit healthcare organizations examined continued "a welcome follow-on" to the average 18.8% return posted in FY2009. The returns for FY2009 and FY2010 represent the best back-to-back annual performance in the nine years that the study has been conducted, and a dramatic shift from the investment returns of FY2008 that plummeted by an average of -21.2% in the recession-wracked year, the study showed.
ROUNDS: The Real Value of ACOs When: August 16, 12:00–3:00 pm ET Where: hosted by Norton Healthcare Register today for this live event and webcast
John Griswold, executive director at the Wilton, CT-based Commonfund Institute, said that two years of strong returns are a positive development for nonprofit healthcare organizations. But they barely moved trailing three-year returns into positive territory while leaving five-year returns in the 4% range.
"Continued strong performance will be needed to cover healthcare organizations' spending from endowment, investment management costs and inflation," Griswold said in a media release. "If we go back to the study for FY2007 before the losses of FY2008 trailing returns for three- and five-year periods were 9% and 11.1%, respectively. Returns at levels such as these are essential to support the missions of the nonprofit healthcare organizations over the long term."
The 90 nonprofit healthcare organizations represented $102.6 billion in investable assets and $42.3 billion in defined benefit plan assets. Investable assets include endowment/foundation funds, funded depreciation, working capital and other separately treated assets.
Griswold said that larger healthcare organizations with assets over $500 million reported average margins of 4.4% for FY2010 while those with assets under $251 million reported margins of 2.3%. "It appears that large hospitals and health systems have been able to reduce their operating expenses, increase operating efficiencies and capture greater economies of scale," Griswold said. "Healthcare reform -- specifically lower reimbursements -- pressures healthcare organizations to control costs, and will likely make them more reliant on support from their investable assets."
ROUNDS: The Real Value of ACOs When: August 16, 12:00–3:00 pm ET Where: hosted by Norton Healthcare Register today for this live event and webcast
Most healthcare organizations saw moderately lower returns on their investable assets in FY2010, when compared with other nonprofit sectors. The 175 independent and community foundations participating in the Commonfund Benchmarks Study Foundations Report posted an average return of 12.5% for FY2010.
The 69 charities participating in the Commonfund Benchmarks Study Operating Charities Report produced an average return of 11.6% for FY2010.
"Historically, healthcare organizations have higher allocations to fixed income securities than do foundations and operating charities, and in a good environment for equities that allocation likely served as a drag on relative return," Griswold said. Healthcare organizations' average 37% fixed income allocation in FY2010, compared to a 13% allocation among foundations and 20% among operating charities.
Domestic equities provided the best return in FY2010, with an average of 17.8%. Other asset class returns were international equities, 12.8%; alternative strategies, 9.9%; fixed income, 7.8%; and short-term securities/cash, 1.1%.
Within the larger alternative strategies category, the best returns came from distressed debt, 15.6%; commodities and managed futures, 15.4%; and energy and natural resources, 14.2%. Marketable alternative strategies including hedge funds, absolute return, market neutral, long/short, 130/30, event-driven and derivatives returned 7.4%, the study showed.
