Michigan's hospitals post impressive profit margins

Michigan's 83 acute-care hospitals posted higher total profit margins in 2014 than in 2013, averaging 8.2%, but health plans' profits dipped slightly to 0.9%, according to the 2015 Michigan Health Market Review.

Hospitals improved profitability by cutting expenses by 1.1%, but they also benefited by a 1.3% revenue increase. Inpatient admissions increased by 4,000 to 2.26 million, reversing six years of declining numbers admissions, said the report, prepared by Allan Baumgarten, a Minneapolis-based healthcare consultant.

Financial data for the hospitals - that include investment income, grants and donations - came from the latest Medicare cost reports submitted by each hospital in Michigan to a fiscal intermediary hired by the CMS.

Michigan's 17 health plans added enrollment in the first six months of 2015 by 7.5% to 3.3 million, but profit margins declined to 0.9% from 1.2% in 2014.

The HMO data was provided by the Michigan Department of Insurance and Financial Services through June 2015.

The 41 hospitals in metro Detroit had net income of $545.6 million in 2014, or a 5.1% total margin on net patient revenue of $10.8 billion. In 2013, hospitals posted net income of $286.1 million for a 2.7% margin.

Leading the pack are the eight hospitals now part of Beaumont Health, which posted net income of $276 million, or 8.3% margin in 2014 on hospital business. Beaumont was formed in 2014 through the merger of Oakwood Healthcare and Botsford Hospital.

Coming in second place are the four hospitals part of St. John Providence Health System, which generated net income of $160.5 million. But St. John posted a higher margin at 9.1% than Beaumont's 8.3%.

Tenet Healthcare's Detroit Medical Center also generated decent profitability, making $107.9 million net income for a 2.8% profit margin.

In Southeast Michigan, Beaumont leads with a market share by revenue of 31%, followed by Henry Ford Health System at 23%, St. John at 16% and DMC at 15%.

Overall, the 41 hospitals lost $7.1 million on patient care operations in 2014. However, that was a massive improvement from 2013, when the same hospitals lost $278.1 million.

Cutting expenses, improving patient admissions and reducing uncompensated care due to Medicaid and insurance expansion from the Affordable Care Act, or Obamacare, contributed to the gains.

But the hospitals in 2014 were able to post such impressive total profits when the other revenue category is added to the bottom line. Based on the hospitals' investments, government grants and philanthropy, another $514.9 million in positive revenue was added to the balance sheets, giving the hospitals a rosy year.

Baumgarten said even with their improved results in 2014, Detroit-area hospitals were far less profitable than hospitals in the Cleveland area (average 2014 margin of 9.6%), Cincinnati (10.4%) and Columbus (13.6%).

The 42 hospitals outside Southeast Michigan also did well. They reported combined net income on $1.3 billion for an 8.2% average margin.

Four systems — Ascension Health Michigan, McLaren Healthcare, Munson Healthcare and Spectrum Health — had margins above 10%, said the report.

Enrollment in HMOs increased 7.5% during the first half of 2015 with 116,000 new Medicaid members and 112,000 individual members added, primarily due to provisions in Obamacare that expanded Medicaid to 138% of the federal poverty level and offered subsidized health insurance on the exchange.

Most of the gains were recorded by Blue Care Network and Humana, the report said. Michigan HMO enrollment increased by 13.6% overall in 2014.

But profit margins dipped slightly for the 17 Michigan HMOs. They posted net income of $72 million and average margins of 0.9%, down from 1.2% in 2014.

Blue Care posted losses of $2.2 million, Aetna Better Health lost $693,000 and Grand Valley Health Plan lost $353,000 during the first half of 2015.

Meanwhile, Priority Health earned $30.3 million, United Healthcare made $16.1 million, McLaren Health Plan made $10.9 million and Health Alliance Plan posted profits of $5.8 million.

Baumgarten also reviewed hospital readmission rates and penalties, clinical quality care scores for HMOs and compared trends of Michigan and several other states, including Minnesota, Ohio, Illinois, Colorado and Texas.

To order the Michigan report, or other state reports, click here.

"Michigan's hospitals post impressive profit margins" originally appeared on the website of Crain's Detroit Business.