Nevada may be one of the few states where hospitals consider a lower-than-average return on investment to be a source of pride and the state government views it as one of contention.
The Nevada Association of Hospitals and Health Systems last week highlighted its members' low return on investment, which is net income divided by total assets, in a preliminary report of their financial performance for 1996.
The association contends that the average return on investment for Nevada hospitals is 2.1 for 1996. The latest available national data show a 1994 average for large urban hospitals of 4.8. Nevada's 1994 average was 1.1, according to the association.
While a low investment return does not seem to be something to brag about, it is important for the association to note, given the state's renewal last year of a law that places a cap on hospital charges.
And for the same reason, it brings increased scrutiny from the state government.
Chris Thompson, chief of the state's healthcare financial analysis unit, said he will be unveiling his own report on the hospitals' performance this week.
In particular, Thompson said he is skeptical of the association's return-on-investment figures. "I very much question that our hospitals are lower than other hospitals throughout the country," he said. "I cannot believe that our hospitals are less profitable than the nation as a whole. I will be looking at that specifically because it seems so clearly out of place."
Nevada began cracking down on hospital profits in the late 1980s, when they became some of the highest in the nation. In 1987, the state passed a law limiting hospitals' total annual profit margin to 17%. If a hospital had a higher profit margin, it had to reduce inpatient charges by as much as 25%.
The current cost-containment program went into effect in 1991 and will expire on June 30, 1997. The law first froze the billed charges of the states' major hospitals at their 1991 rate and then limited increases to the percentage rise in the medical-care component of the U.S. Consumer Price Index. In 1996, the charges were limited to a 3.8% increase, compared with a 4.8% increase in 1995.
The hospitals affected by the law are St. Mary's Healthcare Network and Washoe Medical Center in Reno, Nev., and Desert Springs Hospital, Columbia Sunrise Hospital and Medical Center, and Valley Hospital Medical Center in Las Vegas. University Medical Center in Las Vegas is lumped in with the state's other "Big Six" hospitals for purposes of the report, but it is excluded from the cost-containment program as a public facility.
"We think that hospitals have lived up to the law for the most part," Thompson said. "Increases in costs to the consumer have been below the national average for the last several years."
Thompson said there has been only one significant violation of the law in its five-year history. Desert Springs was fined for revising its charges without seeking approval from the state. He said the lapse was attributed to a "misunderstanding" of the law.
Jeanette Belz, president of the hospital association, said the Big Six hospitals saw their billed charges per admission rise an average of 3.4% in fiscal 1996, and each facility affected by the law was beneath the mandated ceiling. Profit margins were not provided in the preliminary release of data.
While Thompson said he does not expect a major dispute over the association's results vs. those of the state, he said there likely will be some other differences besides the approach to the return-on-investment figures.
The association said the hospitals' inpatient revenues per admission decreased to $6,677 in 1996 from $6,774 in 1995. By contrast, Thompson said, he will focus more on the inpatient revenues per day. He said this figure tends to be a clearer reflection of what each consumer is paying on average because it is not as affected by the type of services offered by a hospital and its average length of stay.
In addition, Thompson said he will be more interested in looking at the results of individual hospitals rather than combined figures. He said each hospital must meet the law's requirements.