Nonprofit Organizations Lead Way in Hospital Revenue Cycle
Hospital revenue cycles for nonprofit health organizations were strong as seven of the top-10 most profitable facilities were classified as nonprofit.
- Profits in hospital revenue cycles for nonprofit health organizations were strong in 2013. That year, seven of the top 10 most profitable hospitals in the US were nonprofit facilities, according to a recent Health Affairs study. Each of the top performers netted more than $150 million from caring for patients.
Forty-five percent of the 3,000 hospitals in the study were profitable, with 2.5 percent earning more than $2,475 per adjusted discharge, Health Affairs said.
At the top of this list was the non-profit Gundersen Lutheran Medical Center in La Crosse, Wisconsin, which raked in $302.5 million in profit (or $4,241 per patient) from patient care services. Sutter Medical Center, which is located in Sacramento, California, came in second place by earning $271.9 million. Other non-profit top performers included Stanford Hospital in Palo Alto, California, which earned almost $225 million and University of Pennsylvania’s hospital in Philadelphia, which earned $184.5 million in 2013.
A top preforming for-profit hospital was Medical City Dallas Hospital in Dallas, Texas. This hospital had a profit of about $210.3 million in 2013.
“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.”
For this study, researchers from the Johns Hopkins Bloomberg School of Public Health and Washington and Lee University researchers analyzed net income for patient care services from hospitals for fiscal 2013. They specifically examined characteristics of the most profitable hospitals. Hospitals with higher markups, system affiliation, or regional power, as well as those located in states with price regulation, were typically more profitable than other types of hospitals, researchers said.
The researchers also observed that hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge. These hospitals happened to be located in areas that had a high proportion of uninsured patients or were located in states with a “dominant insurer or greater health maintenance organization penetration,” researchers said. These types of hospitals had lower profitability than those that did not have these qualities.
Researchers observed that facilities that were part of a hospital system were more profitable because they had the ability to dominate their local market. This factor gave them more negotiating power with private insurers. However, this also lead to patients paying more if their provider was out of network.
Additionally, hospitals with the highest price markups earned the most profits. Rural hospitals, which had 50 or fewer beds, as well as major teaching hospitals typically lost more revenue compared to larger hospitals and urban hospitals.
The researchers also observed that more than half of all hospitals incurred small losses from patient care services for each patient. The median loss was $82.
“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,” Johns Hopkins said.
Critics of nonprofit hospitals (such as Arbiter News) argue that they only provide a low level of charity. Some believe that the tax breaks that non-profit hospitals receive are unjustifiable and unsustainable.
One non-profit hospital did not Health Affairs’ report well. According to Gundersen Health System, the report was “misleading.” Health Affairs challenged Gundersen “position as a high quality, integrated health system that values continuous examination of expenditures, reduction of waste and reinvestment” in the communities they serve, Gundersen said.
For the study, nonprofit hospitals made up 59 percent of the data while 25 percent were for profit and 16 percent were public. According to Kaiser Family Foundation, in 2014, 58.3 percent of hospitals were non-profit, while about 12 percent were for profit. About 20 percent were owned by states or local governments.
To measure profitability, researchers of the study used net income from patient care services. They left out profits from non-patient care activities such as investments, charitable contributions, and tuition, according to Johns Hopkins.
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