Virginia Hospital Profits Surged 11% in 2014

hospital_profitsSpeaking of government-coddled industries…. Virginia’s hospitals increased annual profits 10.7% in 2014 compared to the year before, according to the most recent data compiled by the Virginia Health Information data and reported by the Thomas Jefferson Institute for Public Policy (TJI).

“Hospitals campaign for Medicaid expansion, and want to maintain the state’s control over how hospitals and doctors can invest in new equipment and additional patient beds under the current Certificate of Public Need (COPN) law, saying their financial situation is so precarious that they need these programs to survive,” said Michael Thompson, president of the TJI. “But the financial numbers from the hospitals themselves seem to tell a different story.”

Bacon’s bottom line: I don’t begrudge strong profits — profits are necessary for a functioning market-based economy. But these are monopoly/oligopoly profits. I do begrudge monopoly profits gained by throttling the competition. Like the higher ed system (see previous post), Virginia’s hospital sector has prospered through rent seeking.

There are two ways to go from here. One is to increase the government role as mediator between hospitals, patients and health care funders in divvying up the revenue pie — a zero-sum game. The other is to evolve toward a market system based upon competition, productivity and innovation that drives down costs and improves outcomes — a winning formula for all.

If General Assembly Republicans want to thwart Medicaid expansion next year — as they rightly should, on fiscal grounds — they need to paint a vision for a market-based health care system. I’ve seen baby steps in that direction like the All-Payer Claims Database. But we’ve got a long way to go. Where’s the vision? Do Republicans offer more than, “Repeal Obamacare,” and “Just say no to Medicaid expansion?”

To win the war of ideas, you…. need ideas. The Dems have bad ideas. But bad ideas trump zero ideas. C’mon, Republicans, up your game.

Update: The Virginia Hospital and Healthcare Association has responded to the TJI report. While the overall industry remains profitable, states the VHHA, many local hospitals, mostly rural, are unprofitable. Among rural providers 17 of 37 operated in the red in 2013. Meanwhile,”the financial  challenges that produce negative operating margins are real and worsening.” See the full response here.

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17 responses to “Virginia Hospital Profits Surged 11% in 2014

  1. I’ve never seen markets make sure everyone gets access to what they need. How can we incentivize them to do so?

    • Question: Are you addressing information about goods and services or goods and services themselves? Thanks.

      • All of it. How will we get hospitals in rural areas where there are fewer people to pay for them? And within those hospitals, access to expensive services that might save a life? It seems we are allowing the market to provide where it’s determined to be economical and making those in areas where it’s not do without these days.

  2. 100% of costs are paid though 2020 on the Medicare Expansion and 90% after that with no money coming from the general fund or affecting the deficit. Virginian’s are already paying the taxes to fund it.

    2 billion dollars and 30,000 jobs, many in the poorer parts of Va, as well as health care for 200,000 Virginians would result.

    Virginia could build more managed care community facilities that could charge modest means-based fees to cover the 10% after 2020 or perhaps a tax on for-profit hospitals that would probably be offset by reductions in charity care – i.e. in other words, let the for-profits help pay for the Medicare Expansion.

    the idea that we “create” markets in health care “instead” is hilarious and as Jim points out neither he nor any of the GOP have the initiative or inclination to actually offer such an alternative as anything more than simplistic soundbite theoretical conjecture – certainly not legislation.

    what the Conservatives are offering is – nothing… do nothing.

  3. What’s going on in the health care industry is worse than rent-seeking, it is blatant fraud being perpetrated on the American taxpayers. How else can we describe Medicare Part D and the billions of dollars being siphoned away from our federal treasury to pharmaceutical companies by their bidders in congress?

  4. Not only Part D – Part C Medicare Advantage.. which destroys the 20% co-pay of original Medicare – and subsidizes companies to offer full coverage health care for about 105.00 a month.

    far, far more damaging to the deficit than the MedicAid Expansion..

  5. Bacon: ” I do begrudge monopoly profits gained by throttling the competition.”

    I see a “sponsored by Dominion” sign on your website…They don’t have a requirement to treat poor people, do they?

    • Hah! Hah! Dominion Virginia Power is indeed a monopoly, but its profits are regulated. Hospital profits are not regulated.

      • Given the number of years that there have been no SCC cases to check Dominion’s earning over the last 20+ years and the way Dominion has had the legislature write the rules it lives by, and then interpret them for the SCC, it’s hard to call them regulated in the traditional sense. Also, nothing makes them give people power for free. They have an account they contribute to and that they encourage others to contribute to for the purpose of helping those who cannot afford their bills.

        I suspect many hospitals who have to provide care when people arrive with no insurance or means of paying and are limited by COPN feel their profits are controlled by others.

        It’s not exactly the same for the two industries but we don’t let either of them land in bankruptcy.

  6. Oh dude, I could send you a lot of material on this. Maybe I already have, about the $$$$ that run thru these.

    You should see my latest letter implicating the loss of due process federal law, etc. that the “coverup” of the Va. Dept. of Health Professions/State Medical Board does.

    I believe I have several letters ignored by the Governor about the May 2015 US Supreme Court decision that he ignored, as did the Atty. General when they were written to by big groups about the issues.

  7. The unreported story in Virginia is the monopolization of the medical distribution chain by hospital conglomerates. I know a lot of doctors. Many have sold their practices to hospital conglomerates like Inova in Northern Virginia. They were worried and suffering the intended consequences of Obamacare and decided to get out while the getting was good. Now they are employees of Inova with strong incentives to use other Inova doctors and facilities whether they are appropriate or not. Yeay Obama – another unintended consequence of incompetent legislation!

    • This is real problem, one I touched on earlier saying:

      “c/ Also beware of the occasional bad apple physician (typically arrogant, narrow, uncaring) who too often now can be quite difficult to avoid, challenge or confront.”

      See: baconsrebellion.com/2015/07/will-virginia-copn-study-group-ask-the-critical-questions

      A doctor I respected sent me to another doc. in his Inova type group. The second said I needed an operation. In response to my questions he in far too typical fashion radiated the attitude that I was not intelligent enough to grasp the needs and risks involved.

      I walked out of his office and went to directly down the hall whereon I informed the first doctor that his group practicer at the best was a roaring asshole. I then got two additional opinions on the need for surgery – both said that any operation on my condition was not only ill advised but would almost surely do me positive and irrevocable harm.

      In short, the cartel like system you point out breeds and protects this sort of “bad apple” doctor. So do many other aspects of Obama Care. This should be no surprise. Look at the care many of our Vets. get, if they get any at all.

  8. what does “sold their practice” mean – as opposed to quitting their practice?

    All of Obamacare is private doctors whether it be the exchanges (which are private insurance) or MedicAid.

    The rub is the reimbursement rates – not driven by Obamacare but by Medicare which has standardized diagnostic and treatment codes which is totally changing the way health care is delivered in that doctors can no longer bill the same patient with the same diagnostic and treatment code because the insurance companies find out if the submitted reimbursement is for the same code.

    Providers are also no longer allowed to charge what they wish because again- Medicare has benchmarked the costs for each code.

    Medicare has done with rules what Conservatives have been saying should be done by competition…. the only problem is that real competition requires disclosure of prices – and markets won’t do that in Medical care unless the govt requires it.

    • Larry,

      Many doctors are selling their practices to hospitals or other health care organizations. Like any other small business (and probably more than most) a doctor’s patient list has value because they are typically repeat customers. So doctors can sell their practice based on a multiple of their annual gross revenues (or some other basis). They then become employees of the hospital rather than independent practitioners. The hospital typically takes over billing functions and other administrative duties. The hospital does more business when its “captive” physicians refer patients to one another – which is the practice being referred to in the comment. Thus patients are referred to other physicians not because they are the best choice to deal with their needs, but because there might be financial incentives to the referring doctor to pass the patient to someone else in the organization. Just as doctors get perks (paid vacations, etc. ) for prescribing specific medications.

  9. An executive of the INOVA health-care system who gave a presentation on Obamacare said that it was a boon to INVOVA which would see its profits greatly increased. INOVA is non-profit, so I assume he means “employees salaries and benefits” greatly increased.

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