The Dose

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Health Care & Life Sciences / Life Science & Biotech

Indy's most profitable hospitals, revisited

May 8, 2014

I started working on this post expecting to correct some of my earlier work. But, at most, I’m going to clarify things I wrote previously about central Indiana hospital profits.

On March 20 I wrote about the 10 most profitable hospitals around Indianapolis. That post was accurate, but had a few technical issues, which I’ll explain a bit below.

So I recalculated the profits made from operations by 34 hospitals in the area between Lafayette and Bloomington, over to Columbus, up to Muncie and over to Kokomo. I averaged their operating profits (not including investment returns) over each hospital’s 2011 and 2012 fiscal years.

And here is how they ranked:

1. Indiana Orthopaedic Hospital 33.9%
2. St. Vincent Carmel 27.8%
3. Franciscan-Mooresville 27.0%
4. Community Heart Hospital 23.2%
5. Franciscan-Crawfordsville 18.7%
6. St. Vincent Heart Center of Indiana 17.7%
7. Community Hospital North 17.2%
8. Community Hospital-Anderson 14.2%
9. IU Health West 14.1%
10. Community Hospital South 13.0%
11. IU Health North 12.7%
12. Franciscan-Indianapolis 12.4%
13. St. Vincent Frankfort 12.2%
14. St. Joseph Medical Center-Kokomo 11.9%
15. IU Health Bloomington 11.3%
16. Major Hospital 11.1%
17. Franciscan St. Elizabeth Health-Lafayette 10.4%
18. St. Vincent Indianapolis Hospital 9.1%
19. IU Health Methodist-IU-Riley-Saxony 9.0%
20. IU Health Ball Memorial 8.4%
21. Witham Health Services 6.8%
22. IU Health Morgan 5.5%
23. Hendricks Regional Health 5.3%
24. IU Health Tipton 5.1%
25. IU Health Arnett 4.8%
26. Community Howard Regional 4.2%
27. St. Vincent Anderson 3.9%
28. Columbus Regional Hospital 2.5%
29. Hancock Regional Hospital 2.5%
30. Johnson Memorial Hospital 2.2%
31. Community Hospital East 1.3%
32. Riverview Hospital 0.1%
33. Putnam County Hospital -5.4%
34. Eskenazi Health -21.8%

What struck me about these results is how similar they were to what I got when I just looked at 2012 data. But after I wrote the post, some hospital leaders pointed out to me that 2012—the year I analyzed in my original post—was a particularly good year financially for hospitals.

That’s because hospitals received special payments from the federal Medicare program and the state Medicaid program. For a detailed explanation for how those special payments affected one hospital, see my post here about the Franciscan Alliance.

Also, some hospitals, looking ahead to the Obamacare cuts that started hitting them in 2013, starting reducing costs in 2012, which may have further boosted profits.

But if hospitals enjoyed larger revenues or lower expenses in 2012, it was a modest impact. The overall profitability of these hospitals is remarkably similar from one year to the next.

In 2011, the average operating margin of these 34 hospitals was 8.3 percent. In 2012, it was 9.6 percent.

In 2011, 14 of the 34 hospitals had operating profit margins in double digits. In 2012, 17 did.

If you look at EBITDA (earnings before interest, taxes, depreciation and amortization), the years are virtually identical: 15.2 percent in 2011 and 15.4 percent in 2012.

In 2011, 24 of the hospitals had EBITDA in double digits. In 2012, 27 did.

I’ll be using these 2011 and 2012 numbers as a kind of baseline, to see what happens to hospitals under Obamacare. Their finances are certainly being pinched, not only by the Affordable Care Act, but by other cuts passed by Congress and by a decline in patient traffic.

It will be interesting to see if central Indiana hospitals keep their profits as high as they have been in the recent past.

If you want to see these figures in detail, go to this spreadsheet. It lays out operating profits and EBITDA for each hospital for 2011 and 2012 and then based on the average of both years.

Other notes on hospital profits

The data I used, which hospitals report to the state health department, doesn’t always match what they report in their audited financial statements.

One of the big reasons the data don’t always match is that many hospital systems account for their physician practices separately, which means the losses from those practices are excluded from the hospital profits.

That likely means hospital profits, particularly for the big systems, are lower than reported here. But since the hospital systems don’t report how they apportion those losses by each hospital they operate, we don’t know how much each hospital’s profits should be adjusted.

Three of the largest local hospital systems have reported losing about $100 million on their employed physicians—which would reduce their overall profit margins by a substantial amount.

It likely would not change the ranked order of the hospitals—not significantly, anyway.

Physician losses may adjust the numbers a bit, but don’t think hospitals overall are losing money on their employed physicians. Employed physicians get to bill patients as if they are a hospital—which often brings in millions more per year in revenue.

Also, it’s worth noting—as I did a few weeks ago—that the rather large profits made by Indianapolis-area hospitals do go, in part, to support other hospitals. St. Vincent’s parent organization, Ascension health, uses its Indianapolis profits to support hospitals around the country. In-state hospital systems do the same, on a smaller scale.

Those other hospitals aren’t losing money, generally, but they sometimes do need help implementing electronic medical record systems, recruiting doctors and financing facilities and equipment.

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