How Much Profit at Carilion Is Too Much?

How much profit is it appropriate for a not-for-profit hospital to make? In a quasi-market economy, even not-for-profits need to make some profit — not only to ensure their long-term financial viability but to invest in expansions, renovations, new services and the like. But how much profit? One percent of revenue? Two percent?

The Roanoke Medical Center, the flagship hospital of the Carilion Health System, reported net patient revenue of $612 million (plus $6 million in other revenue) in fiscal 2006, the most recent year provided by the Virginia Health Information Foundation. That was sufficient to generate $37 million in operating income, not including a non-operating gain of $43 million. Thus, this particular “not for profit” entity generated $80 million in profit that year.

That’s an operating profit margin of 5.7 percent, and a total profit margin of 12.9 percent. Those numbers include, by the way, the $42 million the hospital spent that year on uncompensated “charity care,” which is the traditional justification given for allowing not-for-profit hospitals to block competition through the Certificate of Public Need process and jack up their charges to paying patients.

In the previous post, Peter Galuszka highlights the findings of today’s Wall Street Journal about the extraordinary pricing power that Carilion Health System enjoys in the western Virginia medical marketplace. Carilion possesses near-monopoly control over hospital services in the Roanoke Valley and surrounding counties. Not surprisingly, its charges are the highest in the state, the WSJ reports — even higher than in markets with higher labor costs. What’s more, its profits are massive.

Carilion does play a positive role in the Roanoke community, contributing to civic, philanthropic and economic-development endeavors. But does that excuse such massive profits? Isn’t the foremost mission of a not-for-profit hospital to provide affordable, quality healthcare?

Getting back to my original question, what’s an appropriate level of profitability for a not-for-profit hospital? There’s one obvious benchmark in Roanoke — the for-profit Lewis-Gale Medical Center. There, according to VHIF data, the Fiscal 2006 operating profit was $8.4 million on $189 million in revenue — a margin of 4.4 percent.

When the not-for-profit hospital makes a profit margin that’s 75 percent higher than that of the for-profit hospital, I’d say the Roanoke Valley needs to have a “come to Jesus” meeting with the board members of Carilion.

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18 responses to “How Much Profit at Carilion Is Too Much?”

  1. Adam Sharp Avatar
    Adam Sharp

    If you’re going to go after Carilion, then don’t forget to gaze at Valley Health in Winchester.

    Their “revenue and gains in excess of expenses” came in at a cool $57.4 million.

    Add the $13 million from the hospitals in Warren and Shenandoah Counties, and Valley Health had a total profit margin of 14.9% ($470.7 million in net patient revenue among the 3 hospitals).

    Who knew non-profits made so much money?

  2. Jim Bacon Avatar
    Jim Bacon

    Adam Sharp, I totally agree. We picked on Carilion today only because it was the subject of a front page article in the Wall Street Journal. Health care monopolies are a problem wherever they are located. A 15 percent profit margin in Winchester? Pretty sweet. I would wager that the Winchester hospital system uses Certificate of Public Need to protect its geographic franchise.

  3. Anonymous Avatar

    Joe Bageant has a lot to say about the costs of medical care in Winchester in his book “Deer Hunting with Jesus.”

    Peter Galuszka

  4. Adam Sharp Avatar
    Adam Sharp

    Yes he did. That is an excellent book for understanding the northwest corner of Virginia.

  5. Larry Gross Avatar
    Larry Gross

    what are “appropriate” profits?

    hmmm… of all the entities to be able to render a credible opinion on the subject.. I’d wonder about the “appropriateness” of Govt entities to do this…


  6. Anonymous Avatar

    “Whereas profit-making corporations exist under the premise of earning and distributing taxable business earnings to shareholders, the non-profit organization exists primarily to provide programs and services that are of benefit to others and might not be otherwise provided by local, state, or federal entities. While they are able to earn a profit, more accurately called a surplus, such earnings are retained by the organization for its future provision of programs and services, and are not owned by nor distributed to individuals or stake-holders.”


    Under this description an NPO should be able to retain whatever surplus it can reconcile with expected future costs vs expected future revenues. If their surplus becomes an endowment, they can eventually self fund – and provide services for free.

    Kind of like investing in Wind or Solar.


  7. Larry Gross Avatar
    Larry Gross

    if the only difference between a NGO non-profit and a investor-owned for profit is the distribution of the profits…..

    ( and my presumption may be wrong)

    then … well I don’t know…

    if the SCC determines what is an appropriate “profit” for Dominion then why don’t they do the same for Hospitals?

    at any rate… one of the things that Virginia could do is that if it is going to grant a certificate of need – it could tie to it – a requirement for full disclosure of their fees – to any customer that asks for it – much the way that Banks and credit card companies must operate.

  8. Anonymous Avatar

    No problem with the disclosure issue.

    But if you think that Dominion is effectively regulated by the SCC you are really in wonderland. When they found out that the “deregulation” (wink, wink, nudge, nudge)wasn’t in its interests, Dominion sprung the “reregulation” proposal at the last minute on their pet legislators.

    Of course they are “re regulated” (chortle…snicker…giggle) but the “reregulation” law has severely restricted the SCC’s authority.

    There is a lot more money tied up in rate increases than in any tax increase.

  9. Anonymous Avatar

    And they sold the re-regulation as green intiatives.


  10. Anonymous Avatar

    If we hate profits we ought to love GM and Fannie Mae.

    Anybody here bought stock in them lately?


  11. Anonymous Avatar

    The Virginia Hospital Association has a web site,

    Based on a quick review and if I worked the site right, Carilion’s charges for various functions doesn’t appear to be out of line and in some instances may be cheaper than average or median charges for Virginia.

    If Carilion’s charges seem to be less than, say, Henrico Doctors Hospital and its profits are higher could it just be more efficient?

    If this is the case, why didn’t the WSJ rport that fact?

  12. Larry Gross Avatar
    Larry Gross

    Yes.. Jim had referred to it earlier and does it conflict with what was in the WSJ article?

    Did the WSJ article state the source of it’s info?

    re: Dominion and SCC – and rate increases vs tax increases..

    good point.

    I think Dominion is talking about a 20% rate increase – which for many folks – if that was the proposed tax increase – heads would probably roll…..

  13. Anonymous Avatar

    “I think Dominion is talking about a 20% rate increase – which for many folks – if that was the proposed tax increase – heads would probably roll…..”

    Yes, but then, Dominion actually provides something for the money they get.


  14. Anonymous Avatar

    They can change the name to “Dominion” if they want… it’s like trying to “change the spots”…it is still VEPCO in the true sense of the acronym—“Very Expensive Power Company”.

  15. Larry Gross Avatar
    Larry Gross

    If you think Dominion is expensive, you oughta consider what Rappahannock Electric charges.

    "Dan W. Wallace was shocked when he opened utility bills for two of the six Arby's restaurants he and his father own in the Fredericksburg area.

    Rappahannock Electric Cooperative had charged twice as much per kilowatt hour, as Dominion Virginia Power had [charged] for a similar-size Arby's about a mile away.

    ….The rate difference means it will cost about $20,000 more per year to use the same amount of electricity

    Outraged, father and son contacted REC, only to discover that the charge was correct and that they were in the cheapest billing category for a business their size.

    While Dominion is owned by investors and covers the most populous areas of the state, electric cooperatives, which were created to bring power to rural farms in the 1930s, are not-for-profit ventures. They still serve relatively rural areas and have slim profit margins that are returned to customers.

    "Dominion–nor any of its predecessor names such as the Virginia Electric & Power Co.–has ever purchased an electric cooperative," said spokesman Jim Norvelle. "It's not been a part of our business model."

    Buying even a part of an electric cooperative would be difficult if Dominion executives changed their minds. Under Virginia law, one utility can't move into another's territory unless the State Corporation Commission finds that the service in that area doesn't meet public demand.

    "Dominion's rates currently are lower than area cooperatives'. Residential users, for example, pay 8.9 cents per kilowatt hour if they use Dominion, and an average of 12.7 cents if they are REC customers."

    and here's that same word:

    ….."electric cooperatives, which were created to bring power to rural farms in the 1930s, are not-for-profit ventures."

  16. Anonymous Avatar

    Carilion was recently rated by USA Today as being below the national average for modern healthcare.

    Follow this link for more:

    If you’ve ever lived in Roanoke Virginia, you probably already know that most people drive to North Carolina in the event of major health problems. Carilion is competent for triage but does not handle complex diagnosis or extended treatments very well.

  17. Lots in Samara Costa Rica Avatar
    Lots in Samara Costa Rica

    These articles are fantastic; the information you show us is interesting for everybody and is really good written. It’s just great!! Do you want to know something more? Read it…: Great investment opportunity in Costa Rica

  18. THE PIBBSTER Avatar

    Things are changing in Winchester with the "not-for-profit" Winchester Med'l Center.

    City officials are sending the WMC tax bills.

    For more background, visit the following:

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