Seven of top 10 most
profitable U.S. hospitals are nonprofit
The findings, reported in the May issue of the journal Health
Affairs, show that while the majority of U.S. hospitals lost money caring
for patients, a small percentage earned large profits. The results raise
questions about whether peculiarities in the payment systems or some other
factors are creating these outsized winners.
In the fiscal year ending Sept. 30, 2013, for example, the
239-bed nonprofit Gundersen Lutheran Medical Center in La Crosse, Wisconsin,
was the most profitable hospital in the U.S., earning a profit of $302.5
million, or $4,241 per patient.
“A small subset of nonprofit hospitals are earning substantial
profits,” says study leader Gerard F. Anderson, PhD, a professor in the
Department of Health Policy and Management at the Bloomberg School. “Either
they’re doing something right or they are taking advantage of a flawed payment
system. Perhaps the most important question is what are they doing with all of
that money?”
Anderson, who authored the study with Ge Bai, PhD, CPA, an
assistant accounting professor at Washington and Lee University, believes that
the most profitable hospitals have monopolies, or near monopolies, in their
communities.
This allows these hospitals to charge very high rates to
private insurers, which are in a bind because they must have these hospitals in
their networks in order to attract customers.
“All hospitals should make a little profit,” Bai says, “but
some hospitals are obtaining outrageous profits.”
For their study, Bai and Anderson analyzed fiscal year 2013
for about 3,000 acute care hospitals of which 59 percent were nonprofit, 25
percent were for profit and 16 percent were public.
To measure profitability, they used net income from patient
care services, leaving out profits from non-patient care activities such as
investments, charitable contributions, tuition, parking fees, the hospital
cafeteria and rental space.
Overall, Bai and Anderson found that more than half of all
hospitals incurred small losses from patient care services for each patient (a
median loss of $82). Hospitals that were part of a hospital system were more
profitable, perhaps because they could use their weight to negotiate higher
prices from insurers.
Hospitals with the highest price markups earned the largest profits.
Rural hospitals, those with 50 or fewer beds and major teaching hospitals
tended to lose more than urban hospitals, larger hospitals and those with minor
or no teaching component.
In 2013, Medicare and Medicaid payments were primarily based
on the fee-for-service model, which incentivizes hospitals and physicians to
conduct more tests and procedures in order to earn more money.
The new model, a value-based model, under development will
reward hospitals whose patients have the best outcomes.
Bai says it isn’t clear how the new system, being phased in
over the next several years, will alter the landscape of hospital
profitability. It is possible, she says, that different hospitals will become
the most profitable under the new system.
“The system is broken when nonprofit hospitals are raking in
such high profits,” Anderson says.
“The most profitable hospitals should either lower their
prices or put those profits into other services within the community. We need
to develop incentives that allow all hospitals to make a fair profit while at
the same time keeping prices reasonable.”
“A More Detailed Understanding of Factors Associated with
Hospital Profitability” was written by Ge Bai and Gerard Anderson.
Ten U.S. Hospitals with Highest Profit from Patient Care
Services
1. Gunderson Lutheran Medical Center, La Crosse, WI
Nonprofit
Profit: $302.5 million
2. Sutter Medical Center, Sacramento, CA
Nonprofit
Profit: $271.9 million
3. Stanford Hospital and Clinics, Palo Alto, CA
Nonprofit
Profit: $224.7 million
4. Norton Hospital, Louisville, KY
Nonprofit
Profit: $211.2 million
5. Medical City Dallas Hospital, Dallas, TX
For profit
Profit: $210.3 million
6. Swedish Medical Center, Englewood, CO
For profit
Profit: $192.5 million
7. Hospital of the University of Pennsylvania, Philadelphia, PA
Nonprofit
Profit: $184.5 million
8. Methodist Hospital, San Antonio, TX
For profit
Profit: $172.4 million
9. Sacred Heart Medical Center, Riverbend, Springfield, OR
Nonprofit
Profit: $171.2 million
10. Carle Foundation Hospital, Urbana, IL
Nonprofit
Profit: $163.5 million
