Hospital Profitability

So hospitals have managed to emerge from the market slump of the last four years fairly unscathed, posting the largest profit margins in six years:

Profit margins for the nation's hospitals reached a six-year high in 2004, with an average of 5.2%, according to data from the American Hospital Association, USA Today reports. The increase in profit margins was spurred by strong bargaining power with insurers, slowing expenses and an improving stock market that pushed investment income, according to USA Today.

It's good to see hospitals get out of the red, but I have a couple questions:

• How are hospitals returning to profitability this year while the number of uninsured rose by 5.9 million during the same time period?

• What am I supposed to take from this?

Lisa Goldstein, a senior vice president at Moody's, said that profit margins were helped by favorable Medicare reimbursements and higher negotiated rates with private insurers; more expensive surgeries being performed, such as cardiac surgery, orthopedics and neurosurgery;

Has there been an outbreak in number of people requiring heart surgery, orthopedic, or brain surgery in the last six years? No, this spells "unnecessary care".

Profitability isn't a problem per se, but it's troubling to see that hospitals made the most money in six years when millions of people will be turned away or hounded by debt collectors, medical error remains a huge problem, and increased profitability comes, in part, from increased intervention.

Comments

[bj holland]

I think you mean the number of uninsured. B.

[Martin]

Of course, one hopes that no one does brain surgery unnecessarily...

In addition, a topic that I am interested in would be to see how the ORs were utilized (for example, reducing ER capacity could free up ORs for more profitable surgeries). Also, there are other ways of looking at this data and identifying capacity constraints that could have limited the volume of ortho, neuro and cardiac surgery in previous years (see Eugene Litwak's work with New England Medical Center to improve the efficiency of the ER by scheduling surgeries for all 5 business days, rather than just Tuesday-Thursday). Other interesting data points would be if this sample is only for-profit, does it include non-profit and, if so, which ones? i.e. does the sample include the non-profit hospitals that look no different than for-profit ones? All of that could skew the sample in a manner that suggests that community hospitals are getting screwed. In fact, they probably are getting screwed (Jean Mitchell's October web exclusive at Health Affairs makes this point for cardiac surgery in AZ).

[Stop being so angry and skeptical of hospitals...]

The majority of hospitals are non-profit, and even the "for-profit" ones aren't set up to gouge you like loan sharks. Come on, give hospitals a break. The one time in 6 years that hospitals with sincere mission statements pull themselves back into the black, and you have sensational reporters like USA Today and Moody's badmouth them. Have you any idea how many hospitals had to close down their ER in recent years? Knock on wood -- just wait til the day that you get into a life-threatening trauma accident and all your local hospitals have gone completely belly up... then you'd wish they had charged even to cover their costs. It's not the hospitals you should be mad at, it's the screwed-up government legislation, HMO leverage, and the whole shebag.

[Stop being so angry and skeptical of hospitals...]

The majority of hospitals are non-profit, and even the "for-profit" ones aren't set up to gouge you like loan sharks. Come on, give hospitals a break. The one time in 6 years that hospitals with sincere mission statements pull themselves back into the black, and you have sensational reporters like USA Today and Moody's badmouth them. Have you any idea how many hospitals had to close down their ER in recent years? Knock on wood -- just wait til the day that you get into a life-threatening trauma accident and all your local hospitals have gone completely belly up... then you'd wish they had charged enough to cover their costs. It's not the hospitals you should be mad at, it's the screwed-up government legislation that refuses basic universal coverage, HMO leverage, and the whole shebag.

[Kate]

Martin, my impression is that the sample is only for-profit hospitals since the article explicitly discusses "profit margins" -- but I could be wrong.

Stop...

I'm not angry at hospitals, I just think that some of their practices (charging +2x their prices for the uninsured, refusing care, etc) are unacceptable. The problem is that we have so many people who can't afford health insurance, and thus shut down ERs in certain areas b/c of not enough paying patients, etc. Universal coverage would certainly help.

But for-profit practices that involve higher rates of medical intervention aren't good for anyone. It's also discomforting to see profits rise when the rest of the industry, as a whole, is struggling under costs and access to quality care.