In its first year as a for-profit hospital under Vanguard ownership, the DMC cut operating expenses 1.9%, to $1.719 billion in 2011 from $1.753 billion in 2010. That amount is fairly typical after for-profit chains take over not-for-profits, Schuhmann said.
"Operating expenses were reduced mainly by controlling labor costs ... probably eliminating a lot of contract labor and overtime hours," he said.
For example, the percentage of wage and related expenses to total operating expenses at DMC Detroit Receiving Hospital dropped to 63.5% in 2012 from 70.1% in 2010. Other DMC hospitals had similar reductions except for the DMC Rehabilitation Institute of Michigan, which increased its percentage of wages to operating expenses to 84% from 70%.
Total hourly wage rates at Detroit Receiving dropped to $34.41 in 2012 from $36.26 in 2010, and DMC Harper University Hospital dropped to $33.20 from $36.70, the federal cost reports said.
However, Roe said the decrease in hourly rates primarily was due to removing employed physicians from the DMC's labor costs.
"We moved all employed physicians into a 501(a) entity under the tax code" starting in 2011, Roe said. (A 501(a) is a not-for-profit health entity that hospitals create to manage employed physicians.) Roe added that the reduction in labor costs compared with 2010 made it look like hourly rates were lowered. "We no longer were allowed to include physician-employed activity" in hospital cost reports, he said.
Roe said average hourly wage rates of the remaining employees and nurses increased 7%, to $29.27 in December 2012 from $27.33 in January 2011.
Nemzoff said for-profit hospitals typically cut labor expenses when they change ownership.
Average labor costs of for-profit hospitals are much lower, at 38% to 42% of revenue, than not-for-profit hospitals, at 50% to 55%, he said.
"There are a lot of components of labor," Nemzoff said. "For-profits start to cut overtime, agency usage, benefits; they convert people from full time to part time; and they do a better job at flexing people off." Flexible staffing allows hospitals to send home workers during their shift when patient volumes decline.
Vicki Bryan, an analyst with New York City-based Gimme Credit, said Vanguard knew it needed to address high staffing costs within its hospital group.
In 2011, staffing costs at Vanguard's 28 hospitals, including DMC hospitals, were 56% of net revenue, at the high end in the for-profit industry.
"These numbers were mostly driven by higher labor costs at the DMC hospitals," Bryan said.
By 2012, Vanguard had reduced companywide labor costs to 46%, she said.
"DMC is doing better (financially) than it was — but compared to what?" she said. "DMC is still losing money on patient care operations" — a $12 million loss in 2012.
Financial data for the DMC were unavailable for 2013.