Not-for-profits top list of most profitable hospitals

A new analysis of hospital finances offers fresh fodder in the debate over the role that hospital consolidation and prices play in the growth of U.S. healthcare costs.

The unexpected conclusion was that seven of the 10 hospitals in the U.S. with the biggest surpluses from patient-care services in 2013—which were described in the study as the most profitable facilities—were not-for-profits.

Gerard Anderson, director of the Center for Hospital Finance and Management at the John Hopkins Bloomberg School of Public Health, and co-author Ge Bai, a professor at Washington and Lee University in Lexington, Va., based their analysis on Medicare cost reports. The results were published last week in the journal Health Affairs.

Anderson and Bai found that factors influencing surpluses include a hospital's market power, whether the hospital's market has a dominant insurer, retail price markup, prestige, teaching status, the mix of uninsured and Medicare patients, and for-profit or not-for profit ownership.

“Profits are going to be high when a hospital has a very dominant market share,” Anderson said. “The Federal Trade Commission needs to take a look at whether there is unfair competition.”

Anderson said this is the first study he's aware of that looks at patient-care services separately from overall margins. He emphasized that the study, based on data from about 3,000 acute-care hospitals, is a snapshot of one year's financial performance and does not capture prior or subsequent performance.

Gundersen Lutheran Medical Center in La Crosse, Wis., Sutter Medical Center in Sacramento, Calif., and Stanford Hospital in Palo Alto, Calif., topped the list, which included three HCA-owned facilities in Dallas, Englewood, Colo., and San Antonio.

But officials at Gundersen and Sutter challenged the study's methodology, arguing Medicare cost reports of a single hospital in a larger system.

“It's misleading and of limited value to look at the stand-alone portion of the hospital,” said Dara Bartels, chief financial officer at Gundersen, an integrated delivery system that also operates four critical-access facilities, a number of clinics, a health plan and other entities. “It's different from if you look across our entire system.”

Bill Gleeson, a spokesman for Sutter Health, which has faced heavy criticism from payers for its prices, said that the system had a combined margin of 2.6% in 2015, and that it reinvested all those earnings into services for its communities. “Analyzing Medicare cost reports of a single care center within an integrated … healthcare network isn't a constructive or relevant exercise,” he said.

According to the Health Affairs study, 45% of hospitals had a positive margin for patient-care services. The median for-profit facility showed a positive margin, while the median not-for-profit and public facility showed a loss.

But even many hospitals that showed losses on patient care had positive margins overall. Median net income per adjusted discharge from all activities—including investments, charitable contributions and space rental—was $353 for all hospitals and $178 for hospitals with 50 or fewer beds.

While not-for-profits dominated Anderson and Bai's top 10 in terms of total surplus for patient-care services, for-profit hospitals generally had higher surpluses per adjusted discharge.

“Investor-owned hospitals tend to have substantially higher charges than not-for-profit or government hospitals, and they tend to have lower costs,” said Anderson, who noted that for-profits tend to be smaller than not-for-profits and therefore have smaller total surpluses. “It is not surprising that for-profit hospitals maximize profits. What was surprising is that some nonprofits had high overall profits.”