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Indy hospitals healthy despite sequester

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As President Obama said, the pain of the federal sequester will be real. But when it comes to hospitals, how real and how painful depends on where they are and how big they are.

While rural hospitals face sharp reductions in their operating margins, most of the four major hospital systems based in Indianapolis will see only a marginal impact on their profits.

The 35 critical-access hospitals in Indiana—which have just 25 beds each and tend to be in rural areas—will see their operating margins chopped by 31 percent, according to data provided by the Indiana Rural Health Association.

Such hospitals now generate operating margins of just 1.58 percent, and a 12-month sequester would drop those margins to 1.09 percent. Operating margins reflect the profitability of a hospital’s health care services, and excludes any gains or losses recorded on investments.

“It’s a perfect storm, in my opinion,” said Don Kelso, executive director of the Indiana Rural Health Association. “Rising costs to provide care to the people that need the care at the same time your reimbursements are being cut."

But the story will be far different for the four large hospital systems based in Indianapolis.

If the 2-percent Medicare reimbursement cuts from the sequester had been effective in 2011—the most recent year for which local hospitals have reported financial results—their operating margins would have been reduced by 8 percent to 16 percent. Even those cuts would have left each hospital system with healthy margins of no less than 3.8 percent.

Indiana University Health would have seen its operating income of $186 million fall nearly $21 million, or about 11 percent. IU Health’s operating margin would have declined from 4.3 percent to 3.8 percent.

St. Vincent Health would have seen its operating income of $157.7 million fall about $12 million, or 7.6 percent. That cut would have reduced its margin from 7.2 percent to 6.7 percent.

Community Health Network would have seen its operating income of $75.7 million reduced about $7 million, or about 9 percent. That would have meant its operating margin would have been reduced from 5.6 percent to 5 percent.

Franciscan Alliance would have seen its operating income of $114.8 million fall $18.5 million, or about 16 percent. Its operating margin would have fallen from 5.2 percent to 4.4 percent.

According to a large physician practice based in Indianapolis, American Health Network, the impact of the cuts will be minimal in the short term for large health care providers. But the pain will be felt long term.

“We are always concerned about reductions in physician payments,” Don Stumpp, past president of the Indiana Medical Group Management Association, wrote in an e-mail.  “While a 2-percent cut will not be devastating, physician practice costs continue to increase like any business. There won't be any immediate impact, but if the cut isn't reversed, doctors will need to make some budgetary adjustments.”

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  • Healthcare is Big Business
    Each of the large hospitals in the Indianapolis Area have recruited and paid top tier surgeons a significant salary, which in turn has brought business to these hospitals, not just from rural hospitals that are affiliated with these large hospitals, but also from hospitals in cities as far away as Cincinnati.

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  1. These liberals are out of control. They want to drive our economy into the ground and double and triple our electric bills. Sierra Club, stay out of Indy!

  2. These activist liberal judges have gotten out of control. Thankfully we have a sensible supreme court that overturns their absurd rulings!

  3. Maybe they shouldn't be throwing money at the IRL or whatever they call it now. Probably should save that money for actual operations.

  4. For you central Indiana folks that don't know what a good pizza is, Aurelio's will take care of that. There are some good pizza places in central Indiana but nothing like this!!!

  5. I am troubled with this whole string of comments as I am not sure anyone pointed out that many of the "high paying" positions have been eliminated identified by asterisks as of fiscal year 2012. That indicates to me that the hospitals are making responsible yet difficult decisions and eliminating heavy paying positions. To make this more problematic, we have created a society of "entitlement" where individuals believe they should receive free services at no cost to them. I have yet to get a house repair done at no cost nor have I taken my car that is out of warranty for repair for free repair expecting the government to pay for it even though it is the second largest investment one makes in their life besides purchasing a home. Yet, we continue to hear verbal and aggressive abuse from the consumer who expects free services and have to reward them as a result of HCAHPS surveys which we have no influence over as it is 3rd party required by CMS. Peel the onion and get to the root of the problem...you will find that society has created the problem and our current political landscape and not the people who were fortunate to lead healthcare in the right direction before becoming distorted. As a side note, I had a friend sit in an ED in Canada for nearly two days prior to being evaluated and then finally...3 months later got a CT of the head. You pay for what you get...

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