Indy's most profitable hospitals, revisited

May 8, 2014
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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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  • Clarifying perspective needed
    This reporting and analysis has some value, I think, except it misses a key point: These hospital systems are or are subsidiaries of non-profit, 501(c)(3) tax-exempt entities that do not pay corporate taxes, certain real estate taxes, other personal property taxes, and may only taxes on the unrelated business income it deems reportable. To describe them as having EBITDA (the ‘T’ is for taxes) belies any meaningful comparison to companies that operate as privately owned or publicly traded businesses. St. Vincent’s is owned by Ascension Health, a non-profit health system, owned by Ascension, the nation’s largest Catholic healthcare organization. Ascension also has subsidiaries in the sub-verticals of treasury management, venture capital investing, supply management, and biomedical engineering, to name a few. There is no denying the actual value of the many good things these organization do, the hundreds of thousands of people they employ, the hundreds of millions of dollars of goods and services they buy, etc., etc. However, these healthcare systems receive billions of dollars of direct and indirect funding for the U.S. taxpayer, in effect, these systems largest source of funding. Moreover, these systems are permitted to create companion tax-exempt entities to lobby Congress for more direct funding and favorable tax breaks or exemptions. For-profit companies have to compete on a completely different economic landscape. Yet, the article’s title and scope refers to “Indy’s Most Profitable Hospitals”. As part of a business publication, it simply needs a clarifying perspective.
    • Hogwash
      "Hogwash" If hospitals in the Indy area were losing money their facilities would be abysmal. They are not! Money donated from philanthropist, large modern "state of the art" campuses tell me these hospitals aren't hurting. They don't want you to think they are making a profit or the public would accuse them of greed so they want you to think they are in dire straights. St. Francis on the south side recently let go, what, some 300-400 employees but in turn planted that many trees throughout the parking lots! Sorry, I'm not buying this story......
    • To Steve King
      I don't think I entirely understand your comment. Are you saying hospitals cannot be compared to for-profit businesses? Or simply that I should have noted that there's really no T in EBITDA for the hospitals?
      • You are good
        You are comparing pre-tax results, so whether there are taxes or not, your info should be meaning. CK CPA
      • Total bottom line of the Organization
        While seeing the bottom line of individual hospitals is interesting, you can't see the full picture until you know what the entire organization or business is doing. How does Community as a whole perform or Franciscan or IU Health? Generally the more profitable hospitals help fund the hospitals that are in lower-income areas (which may or may not be in the state of Indiana). On the comment above: "St. Francis on the south side recently let go, what, some 300-400 employees but in turn planted that many trees throughout the parking lots!" A tree is quite a bit cheaper than the annual pay of an employee.
        • Dan
          Dan,Spoken like a true CEO with job security! Its nice to know that you value parking lot trees over one's employment. Remind me not to apply for a job with your organization.
          • Reality
            Keep it real, Why should hospitals, or any business, have to apologize for being profitable. The reality is, those organizations that have planned,adapted and in some cases cut, are going to be the organizations left standing to care for you (and all of us). I would much rather be cared for in one of the top 10 most profitable hospitals, than one of the 10 least profitable (without even seeing that list).
          • Merit raises denied 2012-2014
            I work at St Vincent Medical Group but have also worked at Seton hospital. You should question the higher ups why they are not giving raises to their nurses, front office staff, CNAs, etc... We have been told it is because of cutbacks but that is bull. PLEASE do an expose on these crooks. We need labor unions back. They break our backs (LITERALLY) and we are the first to get let go or salaries cut. Where is this nonprofit organization practicing what they preach???

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