On January 14, 2016, Anne Saker, from the Cincinnati Enquirer.com commented on a summary report on Cincinnati hospitals. She observed a surge in net income in 2014 for hospitals while Ohio’s health insurers overall profits declined.
While I’m not sure that Ms.Saker meant to make a point about how well hospitals are doing under the Affordable Care Act (ACA) while insurers suffer, we did want to share some observations that may not be obvious to those who read her article.
- While Cincinnati health systems appeared to do well, it should be noted that profits were made from returns on investments, grants, and philanthropy, suggesting that profit generated from operations is anemic. No matter how large the balance sheet reserves, anemic margins on operations suggest that all is not rosy and that hospitals are struggling with the ACA. The ACA is not only hitting insurance company profits, but many hospitals, especially community hospitals are “taking it on the chin.” Community hospitals, of all hospitals appear to be much more “at risk” for financial performance. Many small rural hospitals get subsidized by the federal government thru the federal critical access program and the tertiary centers seem to have held on to their inpatient admissions because of their medical and surgical sub-specialties and their ability to solicit grants and donations. Admission rates are down in many community hospitals across the country in double digits.
- The “building binge” that Ms. Saker points out is most likely investment in outpatient facilities targeted to improving patient access. Most hospitals and health systems now derive the majority of their revenues from outpatient, but they are stuck in an inpatient fixed asset, built during the 1940s thru the 1990s. The “building binge” is re-tooling infrastructure, although there are exceptions for old worn out facilities. Any hospital investing in new inpatient beds is a rare exception either driven by extraordinary inpatient growth because of new services or extremely misguided in this age of technology, technique, and financial incentives to keep patients out of hospitals. The continued conversion to outpatient is a good thing. One of the hospitals I worked experienced the full brunt of this decline. In its heyday of inpatient hospitalization, there were two hospitals that had a combined inpatient daily census of nearly 750 patients. On virtually the same population, the inpatient census of the two consolidated hospitals today is now around 150….600 fewer patients in a bed on a DAILY basis! While outflow to other hospitals was a small factor, the majority of this was related to a decreased utilization of inpatient beds.
- To hospital administrators and because the decline in inpatient utilization and concomitant rise in outpatient, the percent occupancy stat is virtually meaningless. There are many other, better measures of a hospital’s activity and viability.
- A statistic that many are missing……insurance enrollments, including Health Maintenance Organizations (HMOs) are up through the ACA but company profits are down. United Healthcare just announced a $720 million loss on its ACA related population and is considering pulling out of the ACA entirely. These stats underscore the morbidity of the population that is being enrolled through the ACA. The feds never did get the younger folks to offset this cost and in my opinion, premium increases will continue to escalate as well as significant tax increases coming to pay for all of this. It appears the only “savings” come in the form of tax subsidies to the individuals. To me, it highlights a disconnect between the policy many want and our ability to pay for the significant cost. The ACA, in my humble opinion, is an actuarial nightmare. Medicaid expansion has some of the same dynamics and is driving why several states won’t expand.
Regardless of my previous comments, there are several positive aspects of the ACA. It is the short-term and intermediate negative financial impact on our healthcare system, including doctors, hospitals, and insurers that cause me to worry about how we reconcile with the long term financing of this entitlement.