Wisconsin Hospital Questions Hospital Profitability Study

May 25, 2016 - In a hospital profitability study, researchers from Health Affairs drew the conclusion that Gundersen Lutheran Medical Center earned a profit of $302.5 million, or $4,241 per patient, in 2013. However, Gundersen Lutheran Medical Center claimed that the study was flawed and that its profits were much less than $302 million.

“The researchers used incomplete data taken from our Medicare Cost Report, which did not include Gundersen Health System full costs as an integrated system, Scott Rathgaber, Chief Executive Officer and Dara Bartels, Chief Financial Officer, said.

Profits will always appear larger when other expenses are not taken into consideration, Rathgaber and Bartels said. In 2013, Gundersen Health System’s contribution margin was 4.4 percent for its obligated group, which is made up of the La Crosse Hospital, Clinic, Gundersen Lutheran Administrative Services and Gundersen Medical Foundation. Profits in 2013 were much less than the $302.5 million reported in Health Affairs. For the past few years, operating margins for Gundersen’s entire system has been in the 4 to 5 percent range.

 Also, Medicare cost reports are not uniformly reported, and this prevents a true comparison between hospitals and health systems, Rathgaber and Bartels said.

“Analyzing Medicare Cost Reports of a single care center may have been relevant 20 years ago. However, using the same methodology now for an integrated health system network isn't constructive, but is rather a necessary evil as required for Medicare reimbursement.” Rathgaber and Bartels argued.

Researchers from Health Affairs drew the conclusion that nonprofit health organizations in general saw more profits in their hospital revenue cycles in 2013 compared to for-profit hospitals that treated a larger portion of Medicare patients. Gundersen Health System happened to top the organizations list as the most profitable non-profit hospital.

The ten most profitable hospitals each earned more than $163 million in total profits from patient care services, the report said. Seven of these hospitals were nonprofit. Almost half of hospitals in the study were profitable (45 percent), while 2.5 percent earned more than $2,475 per adjusted discharge. The median hospital lost $82 for each discharge.

According to Kaiser Health News, the top three most profitable hospitals in 2013 were the following nonprofits: Gundersen Lutheran Medical Center, California-based Sutter Medical Center and Stanford Hospital.

Facilities that were part of a hospital system were more profitable than other types of hospitals because they had the ability to dominate their local market. As a result, they were able to have more negotiating power with private insurers, a previous report stated.

While nonprofit hospitals see more gains in profits, for-profit organizations that serve Medicare patients tend to see more expenditures.

Researchers from Health Affairs observed that hospitals that treated a large proportion of Medicare patients had higher expenditures per adjusted discharge compared to those that treated less Medicare patients. Hospitals that treated higher portions of Medicare patients were typically located in areas that had a high portion of uninsured patients. Some of these hospitals were located in states that had a dominant insurer or more health maintenance organization penetration.

 “Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals,” researchers said.

Overall, hospitals that treated a larger portion of Medicare patients were not as profitable as hospitals that did not have these characteristics. “These findings can inform policy reforms, while providing a baseline against which to measure the impact of any subsequent reforms,” researchers argue.

Researchers obtained the 2013 data on the profitability of acute care hospitals by looking at Medicare Cost Reports and Final Rule Data. Also, the researchers measured data on net income from patient care services per adjusted discharge.

Gundersen Lutheran Medical Center did not comment on whether or not it agreed with Health Affairs conclusions regarding the characteristics of profitable non-profits and less than profitable hospitals that serve large portions of Medicare populations. The Wisconsin hospital just emphasized that researchers should also take into consideration other factors that impact profits.

Gundersen Lutheran Medical Center implied that researchers should analyze more data than Medicare Cost Reports when trying to determine hospital profits.

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