17 March 2009

Two Michigan Health Systems See Gains And Losses

Originally Posted To The Detroit News

Two major Detroit hospital systems -- the Detroit Medical Center and Henry Ford Health System -- made money on operations in 2008, despite huge losses incurred from unpaid medical bills and a deepening recession that's causing more people to lose their jobs and Michigan health insurance.

The DMC reported making $39 million on operations in 2008, an increase from the prior year and the largest one-year gain on operations since 1997, said CEO Mike Duggan.

Across town, Henry Ford also made money on operations in 2008, netting about $53.5 million, according to its unaudited financial results. That profit, however, was a drop from 2007 when Henry Ford made about $100.2 million from operating activities.

Operating income is an industry yardstick for measuring hospital performance absent investment income and other non-operating items.

Warren-based St. John Health, which has its flagship hospital in east Detroit, doesn't release its year-end financials until after June 30, when its fiscal year ends.

Despite the gains, Henry Ford and the DMC lost hundreds of millions of dollars last year on uncompensated care -- unpaid medical bills they don't expect to collect payment on -- and in the investment market, which plummeted last fall, putting millions of dollars in unrealized losses on their books. Many of the losses are due to newly unemployed workers who are no longer insured by a Michigan health insurance company.

Henry Ford, which has its headquarters on West Grand Boulevard in Detroit, saw its uncompensated care costs rise from $132 million in 2007 to $161 million last year. The seven-hospital health system also lost about $45 million on investments, dragging down its net profit to $8.5 million by the year's end.

Similarly, the DMC, which has its main hospital campus in Detroit's midtown, booked $47 million in unrealized investment losses in 2008, causing the organization to post a net loss of $6.5 million in 2008 -- the first red ink the hospital has seen since it began making money again in 2004 after nearly a decade of losses.

Duggan said the medical center doesn't usually focus on unrealized investment gains or losses, because the stock market is constantly in flux and those figures aren't directly related to operating performance.On uncompensated care, the DMC did better, reducing its losses from $266 million in 2007 to $255 million last year. The reduction came largely because the medical center made a better effort at enrolling its Medicaid-eligible patients in the Michigan Medicaid insurance program, Duggan said.

"We consider it to have been an excellent year," Duggan said, adding the city's long-term economic problems have forced the DMC to make cuts ahead of some industry rivals. "What other people are going through right now, the DMC went through in 2003 and 2005," Duggan said.

Duggan added the DMC hopes to begin construction on a $30 million outpatient center for its Children's Hospital of Michigan this year, but is waiting for the bond market to improve.

Other Metro Detroit hospitals have faced a challenging year.

In Oakland County, Beaumont Hospitals -- a historically strong financial performer in the region -- lost $29 million on operations in 2008 and has had to lay off staff.

And a report by the Michigan Health and Hospital Association released earlier this year found that 60 percent of Michigan hospitals reported a negative operating margin in the third quarter of 2008, following huge investment losses and last fall's Wall Street meltdown.

In that same quarter, the average margin had fallen to minus 2.9 percent, from plus 2 percent in 2007, the report found.

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