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.

Spectrum Health Part Of Recent Trend Of Hospital Consolidation

As Originally Posted at MLive

GRAND RAPIDS -- Health care experts say news Spectrum Health is exploring an affiliation with a Petoskey-based hospital is part of a 20-year trend likely to continue.

"Back in the 1980s, we had over 200 hospitals in the state of Michigan and virtually all were independent organizations," said Brian Peters, executive vice president of the Michigan Health and Hospital Association.

Brian Peters (far left) says hospital consolidation likely to continue in Michigan

"Now, we have 144 and most of them are part of a larger system, either through outright ownership or through a loose affiliation," he said. "We think we'll see that intensify over the next 20 years."

On Thursday, Spectrum Health officials announced being in formal talks to partner with Petoskey-based Northern Michigan Regional Health System.

Spectrum runs seven hospitals, more than 140 service sites and Priority Health, a 500,000-member health insurance company. Northern Michigan provides care across 22 counties, operates three hospitals, a nursing home and rehabilitation center and clinics.

Officials from both systems said a partnership could lead to better quality care and access for patients, greater purchasing power and greater efficiencies for both organizations.

It is unclear if an affiliation could lead to job losses from consolidation.

Spectrum President and CEO Richard Breon and Northern Health President and CEO Thomas Mroczkowski said there are no expectations that would happen.

Affiliations "don't necessarily have to result in that at all," Breon said. "We're still hiring people and they're still hiring people."

Mroczkowski said it's hard to predict the future, but he believes there is potential to expand services.

"There may be opportunities ... to, in fact, increase the volume and amount of work that needs to be done," he said.

Health advocates say such an affiliation could have positive outcomes for both communities.

"There's not a need for everybody to do everything under the sun themselves," said Lody Zwarensteyn, president of the Alliance for Health, the area's health-planning agency.

"It's good to be in a league with people that can augment and strengthen what you do."

Peters said it bodes well for both locales that both systems are not-for-profit and run by volunteer boards comprised of community members who use the hospital's services.

"Sometimes with mergers and acquisitions in the for-profit sector, that decision-making process is all about the bottom line," Peters said.