Virginia Hospitals Still Looking Pretty Darn Profitable

Feeling no pain: Fair Oaks Hospital in Fairfax County. 2014 Operating margin: 22%.

Feeling no pain: Fair Oaks Hospital in Fairfax County. 2014 Operating margin: 22%.

by James A. Bacon

The debate over hospital industry profitability, and the implications of that profitability for public policy issues such as Medicaid expansion and the dismantling of Certificate of Public Need regulations, has flared up again with the publication two weeks ago of 2014 profit-and-revenue numbers for Virginia’s hospitals.

The newest numbers from Virginia Health Information show that the combined yearly profit for reporting Virginia hospitals was $1.9 billion, as of November 2015, up $150 million from the previous year and an increase of 8.6%, states the Thomas Jefferson Institute for Public Policy (TJI) in “How Are Virginia’s Hospitals Doing Today — with Just Released, Updated Numbers.

When viewed on a regional basis, the industry was solidly profitable in all five regions of the state, said the TJI report. While it’s true that 34 individual hospitals are in the red, the number of hospitals operating with deficits decreased by seven last year.

The profitability numbers are a start contrast with the rhetoric emanating from the Virginia Hospital and Health Care Association (VHHA), wrote author Michael Thompson. In a December 1 letter to Governor Terry McAuliffe, the VHHA contended that hospitals were threatened by declining reimbursements, more than $600 million in discounted services to the poor, $400 million in Medicaid underpayments and reductions in Medicare reimbursement rates.

“It is hard to comprehend what the VHHA is talking about,” wrote Thompson. “The numbers that are reported by these hospitals and health care facilities simply show a different story. …

“For the hospitals to cry wolf and urge a substantial increase in government assistance simply is not credible.  The hospitals overall do not need an expansion of Medicaid and they do not require the continuation of the anti-competitive Certificate of Public Need laws.”

In its own look at the numbers, the VHHA argued that overall profitability numbers obscure what is happening on a case-by-case basis: 25% of all acute care hospitals and 40% of rural hospitals lost money in 2014. VHHA also contends that the industry remains under heavy stress as additional cost cuts from the Affordable Care Act are implemented. Wrote the VHHA:

It is commonly accepted in the industry that achieving a 4 percent operating margin is the minimum threshold necessary for hospitals to maintain fiscal stability and provide for capital expenditures. … Financial pressure … can impede a hospital’s ability to make facility and equipment upgrades so patients have access to state-of-the-art treatment. Based on VHI’s 2014 data, 18 of 31 rural hospitals fell below that mark. Statewide, 40 of 89 hospitals were in that category, which includes some with negative margins and others with modestly positive margins.

Source: Virginia Hospital and Health Care Association

Looming negative impacts. Source: Virginia Hospital and Health Care Association

The chart above shows how the cuts mandated by the Affordable Care Act, other congressional legislation, and Centers for Medicare and Medicaid Services regulations play out between 2011 and 2021. Virginia’s hospital industry absorbed $400 million yearly in cuts by 2014 and expects to get clobbered by roughly $550 million more by 2021.

Bacon’s bottom line: We need to do some deeper analysis.

The industry shrugged off $400 million in added costs between 2010 and 2014, and managed to maintain a high level of profitability. How did that happen, and can it happen again? Did the industry benefit from new sources of revenue and over those four years, such as the enrollment of 87,000 Virginians in the federally insured Obamacare marketplace? Will countervailing factors continue to offset higher mandated costs over the next six years?

Who are those unprofitable hospitals? How many are independent, and how many belong to profitable health care systems? (Roanoke-based Carilion Health System, for example, encompasses numerous rural hospitals yet remains profitable system-wide.) And how many are start-up facilities, which typically take several years to move from red to black?

Digging even deeper, what are the economics of health care systems? Even if rural hospitals operate in the red, do they contribute to system-wide profitability by funneling patients to the system’s tertiary care hospital (Roanoke Memorial Hospital in the case of Carilion)? Just because health-system accounting shows a hospital to be losing money doesn’t mean that it’s in danger of closing.

How much profit is it reasonable for hospitals to make? In a free market, that’s not a relevant question for government policy makers to ask. But when hospitals function as quasi-utilities, and when more than half the hospitals in the state are not-for-profit, it is a fair question. The $550 million in anticipated added costs translates into less than 30% of Virginia hospital profits. A loss of that magnitude would hardly cripple Northern Virginia’s 10 hospitals, which collectively reported an operating margin of 8.2%, or Central Virginia’s 14 hospitals, which reported a collective margin of 8.1%, although added costs could prove detrimental to the 16 hospitals in Virginia’s northwest region, which enjoyed a collective margin of only 2.1%.

We can’t begin to have an intelligent debate over Medicaid expansion or Certificate of Public Need without getting answers to these and many other questions.

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12 responses to “Virginia Hospitals Still Looking Pretty Darn Profitable

  1. Looked at through the broadest of lens, these rising profits in the health care industry should not now be a surprise. This the price that the Federal government paid to gain control of the nations health care industry. This is the devils or Faustian bargain the theretofore private industry of health care in this country demanded before surrendering itself to government control.

    Hilary Clinton foretold of this bargain in the early 1990’s when she announced that the failure to incorporate such a deal into her health care plan back then doomed her initiative to failure after her husband won his first term as President.

    These back room deals between government and private industry now fuel this country’s growing trends into crony capitalism.

    They are also the driving force behind the Federal Government’s ongoing takeover of institutions of higher education. There too the rapid increase in monies that the public must pay for their own education marches in lock step with the Federal governments increasing direct control of the education of its citizens. These trends alarm some Americans. Other welcome it. The vast majority have not a clue. Likely the latter will wake up too late, if they wake up at all.

  2. Re: ” We can’t begin to have an intelligent debate over Medicaid expansion or Certificate of Public Need without getting answers to these and many other questions.”

    totally agree and wonder why TJI did not do some of that.

    but here’s some ways to become more informed:

    map – virginia non-elderly uninsured by county

    https://goo.gl/bjpiLR

    then I’d overlay that map with the hospitals – color coding the the ones that are not-profitable.

    and maybe add another overlay of medicaid recipients by county.

    would we find a correlation between counties with high levels of uninsured and hospitals that are stressed financially?

    If we did – what would we recommend to do about it?

    would we just say that because we have a bunch that ARE profitable – that – that’s proof we don’t need to be doing anything about the others – that they just need to up their game?

  3. I’ve beefed to legislatures and the Gov. before about why these businesses are tax free. They dang sure shouldn’t be.

    • It’s the modern world we live in. Nothing makes sense. Remember these people aren’t interested in money, or in profit, only in your health and my health. And remember too, Iran is not going the get a nuclear bomb, either. However disparate on its face, all this nonsense comes from the same place.

    • actually, haven’t the hospitals actually ADVOCATED paying taxes for MedicAid expansion?

      And actually the idea of a hospital making a profit in the first place when Medicare, and private plans cap reimbursements makes one wonder how they manage to make profits. Are they keeping costs down? have they learned how to properly exploit the diagnostic and treatment reimbursement codes? Are they now selling services that are optional and subject to reimbursement rules?

      Are the hospitals that are not profitable primarily so because of the volume of uncompensated charity care? That’s why I suggested a map showing the hospitals that are unprofitable overlayed by counties that have higher levels of uninsured and entitlement levels.

      The state itself is moving more and more to managed care for MedicAid which ought to help reduce costs. The state while having one of the lowest MedicAid per capita costs in the nation ( 44 I think) still pays for some things other states don’t – like nursing homes for those who have assets including a house.

      One final observation. Given the reality of how few of us actually save up enough to actually pay for our medical care when we get older and rely on Medicare (at 105.00 a month) – what would happen to the “profitability” of hospitals if there was no Medicare or voucher Medicare and about a third to half of seniors would not be able to pay for their medical care without even more subsidizes and govt help?

      • And where would the profits be for defense contractors without the Pentagon? Government money is too often viewed as “free money” by the private and the government sectors of the economy. If you agree, you haven’t looked at your income tax return and real estate tax bill lately.

        • well I never think any of it is “free” money whether it goes for “defense” or entitlements.

          I’ve argued here more than a few times how idiotic it is to provide health insurance to seniors for 105.00 a month and still complain about the deficit.

          I’ve also argued that we currently subsidize employer-provided insurance to the tune of 330 billion a year in tax breaks and at the same time force the insurance companies to cover pre-existing conditions and not charge anyone more on a per subscriber basis.

          Finally – I’ve argued that if we fundamentally say we are not going to deny healthcare to people – then why do we argue that we don’t want to provide it – rather than argue for the most cost effective ways to do it.

          I do not believe we are going to stand by and watch people die after being turned away from ERs.. We do not have the political will to do that – yet we continue to have these discussions about how much it costs to do that – and drop it right there as if the choice is to provide it or not – rather than how do we do it the most cost effective way.

          that’s the frustration.

          we pretend.

          we won’t deal with the realities.

          it’s like kabuki theatre.

          the reality is we do not have the stomach to turn away people from the ERs for lack of money. we just won’t do that – but then we pretend that because – in this instance – that some hospitals are profitable – that all we need to do is figure out how the make the unprofitable ones – profitable…

          right?

          😉

          • As I’ve posted many times, Congress should repeal EMTALA on a phased basis. That action would strongly motivate people to buy insurance.

            But it’s also my understanding that EMTALA does not require wholesale free treatment, but rather, HHS writes: “EMTALA requires hospitals that participate in Medicare to provide a medical screening examination to any person who comes to the emergency department, regardless of the individual’s ability to pay. If a hospital determines that the person has an emergency medical condition, it must provide treatment to stabilize the condition or provide for an appropriate transfer to another
            facility.”

            HHS has recognized that this law has often had the effect of motivating people with little or no insurance to seek emergency room treatment of conditions that don’t require ER treatment. But that may not be a fair criticism of EMTALA, as ERs may be providing more care than is required under the law. It would informative to know what doctors believe constitutes medical treatment to stabilize a patient.

  4. And as I have said many times – if politicians actually openly and honestly said they would repeal EMTALA – then voters would have a clear choice and my view if they’d vote those folks out in a New York Minute and they know it and that’s why they don’t openly promise to repeal EMTALA.

    the whole idea is delusional in my view… how many elected are actually going to support repeal of EMTALA – turning away people from hospitals because they cannot pay? seriously?

    to be clear about EMTALA itself -right now – it DOES REQUIRE the hospital to treat -beyond the ER:

    to wit:

    ” The third EMTALA mandate states that “a participating [i.e., Medicare] hospital that has specialized capabilities or facilities (such as burn units, shock-trauma units, and neonatal intensive care units)… shall not refuse to accept an appropriate transfer of an individual who requires such specialized capabilities… if the hospital has the capacity to treat the individual” (5). This section of the statute has come to be known as the reverse-dumping provision, which prevents specialized hospitals, such as BUMC, from accepting in transfer only those patients with the ability to pay for their services. Thus, when an outside ED contacts the BUMC ED to request a transfer, no questions can be asked about insurance status, just as if the patient had arrived at BUMC on his or her own. The only considerations that may be made before accepting the patient are whether BUMC has the ability to care for the patient’s problem and whether it has the capacity (i.e., bed space) to receive the patient. If the answers to both questions are yes, then BUMC cannot refuse the transfer; if it does, it would be subject to a HCFA investigation if the other hospital thinks it is refusing on grounds not related to ability or capacity.”

    hospitals must admit those who need more care than ER can provide.

    The idea that repealing EMTALA will “force” people to buy insurance –
    when they cannot afford it is also delusional.

    do you think you’re going to force someone who makes 20K a year to buy insurance ?

    especially in a place like Va which opposes not only MedicAid expansion but Obamacare also ?

    but yes – I would welcome an open and honest admission by the elected as to who would repeal EMTALA and I’d abide by the verdict of voters if they agreed to repeal EMTALA.

    On the other hand – I would also require those who lose and the verdict is that we’re not going to turn people away – that we accept that reality – and we work for a system that seeks to be as cost-effective as it can be.

    so in this blog post – I go back to Jim’s questions:

    ” Who are those unprofitable hospitals? How many are independent, and how many belong to profitable health care systems? (Roanoke-based Carilion Health System, for example, encompasses numerous rural hospitals yet remains profitable system-wide.) And how many are start-up facilities, which typically take several years to move from red to black?

    Digging even deeper, what are the economics of health care systems? Even if rural hospitals operate in the red, do they contribute to system-wide profitability by funneling patients to the system’s tertiary care hospital (Roanoke Memorial Hospital in the case of Carilion)? Just because health-system accounting shows a hospital to be losing money doesn’t mean that it’s in danger of closing.”

    I think the answers to these questions are pretty simple. Just identify the not-profitable hospitals and look at their percentage of charity care – and then look at the region they serve in terms of how many are uninsured and/or unemployed.

    and again – I would LOVE to see the elected politicians in these regions get up and promise to repeal EMTALA … maybe then – we’d actually stop pretending .. that we ought not to treat those who cannot pay.

  5. @tmt – people who DO vote are not going to agree to repeal of EMTALA – if they know their elected have actually said that.

    Do you think most people really care about the status of people who would be turned away? Do you think most folks in SW Va are not legal residents?

    My impression may be different than yours – but my view is that a majority of current voters would never vote to run people away from health care at hospitals … yes some would – 20% or so – but 60% would never vote that way – again – if the guys running for office admitted the truth of their positions.

    and again -if they DO vote that way , I’d abide by that vote but I’d expect the same from the folks who would vote to repeal – and lost to the majority.

    • So long as people can get free ER care, why do we expect everyone to purchase some type of health insurance? Isn’t that the supposed goal of the ACA? I suspect more of the “young immortals” would purchase some health insurance if they knew the ER safety net were gone or at least diminished (say everyone is responsible for at least $500 (to make up an number)). And if more young and healthy people purchased insurance, wouldn’t the big premium hikes be tempered some?

      We cannot have it both ways. If we want to get as close to universal coverage as possible, we need to repeal or, at least, weaken EMTALA.

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