15 April 2010

Area Hospitals hit 3-Year Low in Profitability

Crain's Detroit Business

Profits at Southeast Michigan hospitals in 2008 dipped to their lowest level since 2001, according to the 2010 Michigan Health Market Review published by Allan Baumgarten, a Minneapolis-based health researcher.

In 2008, Southeast Michigan health care systems and independent hospitals posted aggregate losses of $77.4 million on patient revenue of $9.5 billion for a -0.8 percent operating margin.

Not counted in those numbers is Ann Arbor-based University of Michigan Health System, which posted losses of $126.3 million on $1.7 billion patient revenue in 2008, a -7.7 percent margin, the Michigan report said.

Data for the report came from the latest Medicare cost reports submitted by each hospital in Michigan to a fiscal intermediary hired by the Centers for Medicare and Medicaid Services.

Baumgarten said hospitals lost money in 2008 because of fewer insured patients, a decline in profitable elective procedures and surgeries and difficulty collecting higher co-pays and deductibles from patients.

“Profitability of hospitals…also suffered at the end of 2008 and the beginning of 2009 because of the higher costs of borrowing and losses on investments,” Baumgarten said.

Hospitals in metropolitan Detroit also suffered a decline in other revenue, including investments, philanthropy and government grants, to $357 million in 2008 from $689 in 2007, the report found.

Profits for Southeast Michigan hospitals have steadily declined from 2005, when hospitals collectively reported net income of $163.2 million, a 2 percent margin. In 2007, hospitals reported net income of $213.4 million, or a 2.3 percent margin.

One factor driving the income decline is the 2 percent drop in patient admissions from 2007 to 2008, the report said.

“The announced acquisition of the Detroit Medical Center hospitals by Vanguard Health Systems, an investor-owned company, means more competition for a shrinking pie of hospital volume,” Baumgarten said.

Primarily by layoffs, retirements, improved productivity and other cost-cutting measures, most of the hospitals either returned to profitability or improved operations in 2009.

Here is a snapshot from some other Detroit-area hospital systems in 2008.

Detroit Medical Center, net income of $36.5 million on $1.54 billion patient revenue, a 2.4 percent margin. DMC had a 16.1 percent market share in 2008.

• Henry Ford Health System, loss of $136.8 million on $1.8 billion revenue, a -7.5 percent margin. Henry Ford had a 17 percent market share in 2008.

Last month, Henry Ford reported it had increased net income by 258 percent to $30.4 million in 2009.

Oakwood Healthcare System, net income of $18 million on $921.6 million revenue, a 1.9 percent margin. Oakwood had an 11.3 percent market share.

• St. John Health System, net income of $28.3 million on $1.6 billion revenue, a 1.8 percent margin. St. John had a 17.6 percent market share.

• Trinity Health Systems, net income of $40.6 million on $551.4 million revenue, a 7.4 percent margin. Trinity had a 6.4 percent market share.

• William Beaumont Hospitals, loss of $612,000 on $1.8 billion revenue, for no margin. Beaumont had a 19.3 percent market share. Officials said Beaumont returned to profitability in 2009. It posted $13.8 million in operating income during the first six months of 2009.

• McLaren Health, loss of $4.9 million on $368.1 million revenue, or -1.3 percent margin.

• Other independent hospitals reported a loss of $58.1 million on $907.7 million in revenue, a -6.4 percent margin.

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