The Business of Healthcare
by James C. Sherlock
The predictions for hospital finances in 2021 forecast Armageddon. Then the actual financial data from 5,600 U.S. hospitals in 2021 were assessed.
Based on those data the median operating margin for U.S. hospitals in 2021 was actually a loss of 1.5%. Meanwhile, the average operating margin for hospitals was a loss of 11.7%.
Virginia hospitals blew those numbers away. Crushed them. Again.
As they do every year.
Newly posted state data show that the average 2021 operating margin in Virginia acute care hospitals was a positive 12.5% in 2021.
I don’t know how many standard deviations that is, but it is a lot. We are finally number one in something to do with health care, but the bad news is that the money is paid by Virginians one way or another.
If you lost that badly in a card game, you would think something was amiss.
It is in this case.
vhi.org, the state’s contractor for health data, writes:
VHI indicators allow you to see how facilities rank as far as costs and also their profits (operating margins).”
Facilities that are efficient (another measure) may waste less and provide better quality of care by streamlining and reducing unnecessary costs.
Indeed. We will look at some of those margins and efficiency/productivity measures as presented by VHI.
Acute care hospitals. As stated earlier, the average operating margin of Virginia’s 75 acute care hospitals was 12.5% in 2021.
Revenue and gains in excess of expenses and losses (profits for the proprietary hospitals) for those hospitals, boosted in part by federal COVID money, soared from +$2.1 billion in 2020 to +$5.44 billion in 2021.
Critical Access Hospitals. Even the total operating margins at Virginia’s seven often-struggling critical access hospitals were net positive at 1.8%, reflecting $5.7 million in operating gains.
Their non-operating gains, almost $34 million including CARES money, brought revenue and gains in excess of expenses and losses to nearly $40 million and net total margin to an unprecedented 11.4%.
For-Profit Hospitals vs. Non-Profit Hospitals.
Total Margins. Total margin of Virginia’s 17 for-profit acute care hospitals as a group was 22.4%.
CJW Medical Center in Richmond, the largest by revenue of Virginia’s for-profit hospitals, booked just over $1 billion in net patient service revenue in 2021, paid almost $110 million in taxes, and still posted a total margin of 25%.
Total margin was 18.2% for the 58 not-for-profit acute care hospitals as a group,
The largest by revenue of the acute care hospitals, Inova Fairfax, booked $2.1 billion in net patient service revenue, paid $84 million in taxes and posted a total margin of 5.5%.
Efficiency and Productivity – HCA vs. Inova. To compare acute care hospital management performance, vhi.org awards efficiency indicators (EI).
- VHI’s Efficiency (and Productivity) indicators were designed to help large employers, and purchasers (health insurance companies) to find the most efficient and productive health care providers.
- VHI publishes rankings on the Efficiency and Productivity of ambulatory (outpatient) surgical centers, hospitals and nursing facilities each year.
- Performance measures include charges, costs, productivity, financial viability, and community support.
Lower is better; the range of EI scores of Virginia hospitals in 2021 was 1.4 to 3.7.
We’ll look at efficiency/productivity of HCA and Inova, generally credited as the two best hospital systems in Virginia.
- HCA’s CJW Medical Center in Richmond, the largest of the for-profit hospitals in Virginia, was awarded an EI of 1.9;
- Inova Fairfax, the largest period, 3.0.
Surprisingly, at least to me, all of Inova’s five hospitals have EI’s in the 3.0 range.
Of HCA’s nine other acute care hospitals, the following EIs were awarded:
- Henrico Doctors’ 3.0
- Tri-cities (ex-John Randolph) 2.0
- Lewisgale Allegheny 2.3
- Lewisgale Pulaski 2.1
- Lewisgale Montgomery 1.4
- Lewisgale Medical Center 2.2
- Reston 2.5
- Stone Springs 3.7
- Spotsylvania Regional 2.3
The HCA outlier is Stone Springs Hospital Center, which because of its high-end case mix, high charges (affected by low Medicaid participation), high costs and low utilization was rated inefficient in 2021 by vhi.org’s formula.
HCA’s Henrico Doctors matches the Inova hospitals in EI. The other eight HCA hospitals are far more efficient and productive than those in Inova’s monopoly system.
HCA is the best-managed hospital system in Virginia. By a lot. They earn their money.
Bottom line. Virginia’s hospitals booked unprecedented gushers of positive Revenue and Gains in Excess of Expenses and Losses in 2021. Two and a half times what they made in 2020. More than double 2019.
Of our seven rural critical access hospitals, five are in the hands of larger systems that can take care of them. The seventh, Bath Community, lost $5.6 million on an operating basis in 2021 but more than made up for it with $20 million in non-operating gains – I assume federal COVID money.
FYE 2022 may prove more of a challenge. Federal COVID money started to dry up, inflation was way up and the value of the investment portfolios of the richer non-profits went down.
We’ll see how 2022 turns out, but they have big cash cushions from 2021.
Nice for them, but our hospitals have been milking Virginia consumers with far-out-of-the-national-mainstream margins for the 15 years I have been tracking it.
Bottom line 2. Both the hospital industry and health insurers are regulated. Hospital regulation in Virginia has worked absolutely backwards with COPN granting and protecting regional monopolies.
That is certainly one of the pipers being paid.
We are paying too much for health insurance, and insurers, probably including Medicaid, are paying too much to the hospitals, especially the monopolies.
Virginians are tired of it.
It is past time for the Commonwealth to exercise its existing oversight responsibilities.
The State Corporation Commission, with responsibility for the health insurance market, may want to check with the insurers to determine how Virginia hospitals so continually outperform the nation in financial performance with insurance payments and copays.
HCA seems to earn its money. But the regional hospital monopolies are a direct cause of high prices, especially the ones with large margins and poor efficiency/productivity ratings.
The General Assembly may wish JLARC to join with the SCC on the investigation.
