Metropolitan Detroit hospitals chalked up one of their strongest financial showings in years last year, despite stricter accounting rules and a huge malpractice judgment against one very profitable hospital.
In some key financial categories, local hospitals outperformed their national peers, which are crowing about a strong year as well.
"Hospitals are stronger now than two years ago because people have gone through a lot of re-engineering," said Christopher Palazzolo, chief financial officer of 323-bed Garden City (Mich.) Hospital. "The industry has gone through changes in preparation for the changing (payment) system. Improved efficiencies, cost-cutting...this explains their improved bottom lines."
The American Hospital Association said hospital profit margins have hit their highest level since the mid-1980s (See story, p. 115). Aggregate profit margins for the nation's hospitals last year hit 5.5%, the highest total profit margin since 1985, the AHA reported (May 23, p. 6).
And 1992 "may have been a high-water year" for state hospitals, based on some reported financial criteria, said Patrick Foley, a spokesman for the Michigan Hospital Association, the Lansing trade association representing 170 hospitals.
The MHA didn't have 1993 financial information available.
HCIA, a Baltimore-based healthcare information company, said Detroit-area hospitals saw median net income rise to $3 million last year from $573,248 in 1991. Operating profit margins went to 2.9% in 1993 from 0.5% in 1991, and total profit margins rose to 4.3% last year from 1.2% in 1991.
According to HCIA, median net income nationwide last year was $822,000, operating profit margin was 3.1% and total profit margin was 4.3%. It surveyed 4,800 hospitals, including about 50 metropolitan Detroit facilities. One area in which Detroit hospitals fared poorly was cash on hand, which measures the number of days a hospital could continue to operate if it didn't receive any more revenue.
Local hospital sources prefer at least 45 days of cash available. Moody's In- vestors Service, the New York-based bond-rating company, said the median for cash on hand in 1993 was 103 days, based on 400 hospitals.
According to HCIA, Detroit's days of cash on hand was 36, down from 57.3 in 1991.
Botsford General Hospital in Farmington Hills, Mich., has enough cash available to pay 18 days of bills, but the hospital's president and chief executive officer, Gerson Cooper, said he isn't too concerned.
"It is due to the fact that we are doing a lot of construction" requiring immediate payments, he said. "You should have at least double that, but it's not a financial problem; (more days) is only a comfort margin."
The bigger problem facing Botsford is a $13.5 million judgment awarded last year by an Oakland County Circuit Court jury to a plaintiff in a personal injury suit. Botsford wrote off a chunk of that award against its bottom line. Without the judgment, the hospital would have had a profit of $65.5 million, Mr. Cooper said, citing increasing hospital volumes.
Botsford is appealing the award.
Saline (Mich.) Community Hospital had 28 days of cash available last year, and "that was an improvement, so it feels all right to me," said Bill Lavery, the hospital's CEO.
Mr. Lavery credits "pretty strong belt-tightening actions" by area hospitals for the strong 1993 showing.
In documents filed with HCFA, Henry Ford Hospital showed a net loss of $16.1 million. But the hospital registered a net profit of $19.5 million for the year before a re-tiree healthcare expense was deducted, said Tom McNulty, CFO of Detroit-based Henry Ford Health System, the hospital's parent. He said the loss was attributed to a one-time write-off to accommodate rules set by the Financial Accounting Standards Board, regarding accounting for retiree healthcare benefits.
"We didn't lose money," Mr. McNulty said.
He said 1993 was a good year for the company and the hospital, and 1994 is even better, thanks to an admissions increase of 2% and a cost-cutting program implemented in 1991.
"Everybody got smarter about how to manage," he said.
Mr. Palazzolo classified his hospital's 1993 as "average or subpar" because the hospital was in the middle of operational changes and expense-reduction programs put in place a year earlier. The hospital's operating margin was 1.6%, and total profit margin was 1.1%.
"That's not where we would like to have it," he said.
He said 1994 will be better than 1993 for Garden City Hospital.
Net income this year is running 82% higher than at the same time last year, he said.
Days of cash on hand, which at 28 last year was less than expected, has since improved to 38, Mr. Palazzolo said.