For-profit hospital systems made more money last year, while their not-for-profit counterparts saw their profits sag, a new survey by MODERN HEALTHCARE shows.
The total profits of for-profit hospital systems rose to 3.5% in 1999, up from 2.8% the year before, while the total profits for the private not-for-profit sector sank to 2.2% last year from 3.4% in 1998, according to the 24th annual Hospital Systems Survey, formerly the Multi-unit Providers Survey.
Although earnings of for-profit hospital companies grew, they were still shockingly low, says Thomas Scully, president and chief executive officer of the Federation of American Health Systems, the trade association that represents for-profit hospitals.
"They're better than last year, but they still stink," he says.
Profits and losses are calculated using total net revenue and total net income for systems that reported financial data for both 1998 and 1999.
A total of 193 systems reported data for both years, including nine for-profits, 165 private not-for-profits and 19 public systems.
Profits overall for the 193 systems, regardless of ownership, dipped to 2.2% in 1999 from 2.8% in 1998.
For some in the hospital lobby, this evidence of a decline in profitability is no surprise.
"The Balanced Budget Act of 1997 clearly had an impact across the field," says Richard Wade, senior vice president for communications at the American Hospital Association.
Wade points out that in 1999 many hospitals spent money they otherwise might not have on prevention of Y2K computer problems.
Interestingly, profits declined for not-for-profit systems at a time when their revenue increased almost 8%.
"That tells me that labor costs, the costs of prescription drugs and other operational expenses are going up faster," Wade says.
For-profit systems were able to increase their earnings even though total revenue declined by less than 1%.
Scully says the decline in revenue among for-profit hospital companies reflected major divestitures by the two largest companies in the sector, Nashville-based Columbia/HCA Healthcare Corp. (recently renamed HCA-The Healthcare Co.) and Santa Barbara, Calif.-based Tenet Healthcare Corp. Both companies spent much of 1999 selling less strategic hospitals. HCA sold enough to form two new companies.
"In both of the two biggest systems, they got back to basics," Scully says. "That would hopefully mean lower revenue and higher margins."
Because for-profit systems must answer to their shareholders each quarter, the investor-owned companies may have been slightly quicker than not-for-profit systems to ditch home health businesses and other money-losing ventures last year, Scully says.
Repackaging the industry. A total of 220 systems responded to our revamped survey, including 16 for-profit, 39 Roman Catholic, 19 public, 129 secular not-for-profit and 17 non-Catholic religious systems.
The survey covers the year ended Dec. 31, 1999, although most respondents supplied comparative data from 1998.
The survey captured last year's trend of repackaging the hospital industry.
Several new healthcare systems arrived on the scene--the byproducts of for-profit hospital spinoffs and not-for-profit consolidations.
One of those new systems, St. Louis-based Ascension Health, immediately leapfrogged its way to national prominence, becoming the country's largest private not-for-profit healthcare system and the fourth-largest system overall as measured by net patient revenue. Ascension reported almost $5.5 billion in net patient revenue.
Ascension, which had 60 acute-care hospitals last year, was created by the November 1999 merger of Daughters of Charity National Health System, St. Louis, and Sisters of St. Joseph Health System, Ann Arbor, Mich.
According to the survey, the country's largest healthcare system in 1999 as measured by net patient revenue was the mammoth U.S. Department of Veterans Affairs, with $20.7 billion in revenue.
The biggest nongovernmental system is HCA with $16.7 billion in net patient revenue in 1999.
Although the VA had more revenue, HCA was the biggest system in 1999 when ranked by acute-care hospitals, with 203 facilities vs. the VA's 172.
HCA was a major contributor to the industry repackaging last year because it gave birth to two new for-profit hospital companies.
In May 1999, the former Columbia spun off 33 hospitals into Triad Hospitals, a new Dallas-based company, and another 23 rural facilities to create LifePoint Hospitals, a new Nashville-based company (May 17, 1999, p. 26).
Because neither Triad nor LifePoint was operating for the full year in 1999, they did not supply financial information for the survey and, consequently, are not ranked.
Another for-profit newcomer to the survey is Nashville-based Iasis Healthcare Corp., which acquired all of its 15 hospitals last year. The company bought five facilities from the financially ailing Paracelsus Healthcare Corp., Houston, and another 10 from Tenet in two deals completed last October.
Iasis declined to provide financial data for this survey, so it, too, is not ranked by net patient revenue.
Other new systems include Banner Health System, with headquarters in Fargo, N.D., and Phoenix, and Irving, Texas-based Christus Health.
Banner, ranked No. 28 with almost $1.6 billion in annual net patient revenue, was created when Lutheran Health System, Fargo, acquired Samaritan Health System in Phoenix. Christus, ranked No. 22 with almost $1.9 billion in revenue, was formed by the merger of Incarnate Word Health System, San Antonio, and Sisters of Charity Health Care System, Houston.
Other significant rankings for systems in 1999 according to their acute-care hospital holdings:
* Winter Park, Fla.-based Adventist Health System, which has 28 hospitals, is the largest non-Catholic religious system.
* Sacramento, Calif.-based Sutter Health, with 25 hospitals, is the largest secular not-for-profit system.
System growth. Though the survey was revamped, it still comes with this disclaimer: The survey relies on self-reported data for 1998 and 1999.
This means the survey is at the mercy of the reporting and accounting methods used by each of the systems.
The survey shows an overall increase in the number of acute-care hospital holdings by systems, which translates to an increase in staffed beds.
In 1999, systems overall reported a 5% increase in the number of acute-care hospitals and a 5.2% hike in the number of staffed beds. Last year, 217 systems reported having 2,144 acute-care hospitals with a total of 414,823 staffed beds, the survey shows. The results are based on systems that reported data in both 1998 and 1999.
Catholic systems saw the biggest expansion.
Forty Catholic systems reported a 22.8% increase in staffed beds to 111,784 beds and a 25.1% increase in the number of acute-care hospitals to 553, the survey shows.
Conversely, the survey reveals shrinkage at the for-profits. A total of 13 for-profit systems reported a 3.5% decline in staffed beds to 101,966 and a 6.4% drop in the number of acute-care hospitals to 538.
Financial data reported by the systems indicate assets grew, along with long-term liabilities last year.
In 1999, 206 systems reported almost $250 billion in assets, an increase of 4.4% from the previous year. A total of 204 systems reported total long-term debt of just more than $87 billion, an increase of 3.2% from 1998.
No dire straits. Though the hospital and post-acute-care service industries warned last year that Medicare payment cuts would block access to home health, skilled nursing and other services, those dire industry predictions don't appear to pertain to most survey respondents.
Despite Medicare cuts in home health payments that were fully implemented by October 1999, most systems continued to provide home health visits in roughly the same volume in 1999 as they did the previous year. Overall, though, the top 25 respondents providing information for both years reported an 11% decline in visits.
A few of the high-volume systems, including St. Joseph Health System and University of Pennsylvania Health System, saw an increase in the number of home visits they provided. St. Joseph, Orange, Calif., saw a 38% increase to 493,967 visits in 1999, compared with 1998. University of Pennsylvania, Philadelphia, saw its number of visits soar 52% to 284,617.
But the new Medicare rules evidently prompted some systems, including not-for-profit Shands HealthCare, Gainesville, Fla., and for-profits Quorum Health Group, Brentwood, Tenn., and Health Management Associates, Naples, Fla., to slash the number of home nursing visits they provided in 1999.
Shands, the No. 4 home health provider on MODERN HEALTHCARE's list, cut visits by 24% to 1,110,234 in 1999. Quorum's visits declined 53% to 464,918 (No. 12), and HMA's fell 42% to 335,000 (No. 23). The vast majority of respondents continue to provide home nursing care at multiple sites.
Cuts in Medicare payments don't appear to have resulted in the widespread closure of hospital-based or freestanding long-term-care facilities, as was predicted by critics of the balanced-budget law.
In all, the number of long-term-care facilities dropped by only 12 to 1,263 in 1999 among survey respondents providing figures for both years. In the largest cut reported, HCA slashed the number of its units to 103 from 163, but about half of those cuts can be attributed to its spinoffs.
Only one of the 65 systems that reported operating assisted-living facilities had fewer facilities in 1999 than in 1998. Assisted living, which is largely paid for through private funds, is not affected by the Medicare reimbursement changes that have rocked the rest of the post-acute-care sector.
Providence Health System, Seattle, operated 13 facilities housing 687 residents, more than any other system. That's one more than it operated in 1998. Catholic Health East, Newtown Square, Pa., operated nine in 1998 and 1999, and both Wheaton (Ill.) Franciscan Services and ProHealth Care, Waukesha, Wis., operated six. Pinnacle Health System, Harrisburg, Pa., reported one assisted-living facility in 1998 and none in 1999.
Forty-four systems, all not-for-profit, reported operating continuing-care retirement communities. These campuses generally offer residents a range of housing and healthcare options, including retirement living, assisted living and skilled-nursing care. The four top operators of CCRCs based on the number of campuses were Catholic Health Initiatives, Denver, with 20; Banner Health System, with 13; Covenant Ministries of Benevolence, Chicago, with 11; and Gundersen Lutheran, La Crosse, Wis., with 10. Campus size ranged from about 20 residents to more than 400; Covenant was the largest, with an average of 417 residents per campus.
In psychiatric inpatient care, Universal Health Services, King of Prussia, Pa., led the pack with 23 hospitals in 1999. Neither Charter Behavioral Health Systems, Alpharetta, Ga.--once the nation's largest mental health provider and which declared bankruptcy in February--nor 22-hospital Behavioral Healthcare Corp., Nashville, responded to this year's survey.
UHS' agreement last month to purchase 11 hospitals from Charter will raise its total to 36, making it the nation's largest provider of inpatient psychiatric services (May 29, p. 6).
Respondents increased the number of psychiatric hospitals and units they ran overall, with net increases in facilities among all types of systems except public.