Hospital Profits Slumped, Charges Held Steady

Oregon hospitals felt a financial slump last year but patients wouldn't know it to judge by their bills

December 17, 2009 -- Despite a financial slump last year, Oregon's 57 hospitals still managed to amass more than $240 million in profit, their worst performance in five years, according to audited financial records filed with the Oregon Office of Health Policy and Research.

With higher uncompensated care costs and a down economy Oregon hospitals earned more than 50 percent less profit than in 2007, while collecting more than 8 percent greater revenue, which meant everyone -- including insurers -- paid more for their services. 

All told, hospitals brought in more than $7 billion in revenue during 2008, compared to less than $6.5 billion the year prior. In fact, their revenues have increased each year since 2002 by 8 percent, which indicates that cost containment hasn't made an impact on hospitals during these difficult economic times as they keep raising their rates.     

Data from Kaiser Sunnyside Medical Center was not included in this analysis because, unlike its competitors, Kaiser Permanente is not required to report financial data to the state since it's considered a fully integrated healthcare system.

Charges unscrutinized

While the debate over healthcare reform has focused on regulating the insurance industry, there's been virtually no discussion by state or federal lawmakers about reining in hospital charges, which account for more than 30 percent of healthcare spending in this country.  

Oregon has some of the most efficient hospitals in the country, evidenced by their low Medicare reimbursement rates, but overall hospital costs in the state are still a leading driver each year of double-digit insurance rate increases.

A look at hospital payments in Oregon show wide discrepencies. In cities that have only one hospital such as Bend, the variations are even more dramatic because these hospitals have no competition and can demand higher reimbursement rates, which inevitably drive up everyone's insurance costs.

The best way to analyze this information is by taking a look at the database of hospital payments posted on-line by OHRP which discloses the immense variation for exactly the same procedure. For example, a balloon angioplasty at St. Charles Medical Center in Bend costs about $43,000 while the same procedure costs only $20,000 at Oregon Health & Science University and $22,000 at Legacy Emanuel Hospital in Portland.
St. Charles in Bend also recorded a $57 million deficit in 2008.

Decline due to Providence

The eight hospitals run by Providence were primarily responsible for the decline in profitabiliy last year. Overall their net income dropped 95 percent down to $10 million from $217 million in 2007. At the same time, the hospitals owned by Providence in Oregon collectively received 7 percent more revenue than during 2007. The hospital system still reported $1.1 billion in unrestricted net assets.
Otherwise, the large urban hospitals that dominate close to 84 percent of the market realized the greatest financial gains, while the smaller rural hospitals continued to struggle. Urban hospitals experienced a 3.4 percent profit margin while rural hospitals experienced profit margins on average less than 1 percent in 2008.
Sacred Heart Medical Center in Eugene performed the best in terms of net income, earning more than $82 million in 2008 followed by OHSU, which ended the year with $42 million. Eight hospitals turned profit margins in 2008 greater than 10 percent.

Non-profit exemptions

Only two of Oregon's hospitals --Willamette Valley Medical Center in McMinnville and McKenzie Willamette in Springfield -- are for-profit entities and, as such, are required to pay property and income taxes unlike thier non-profit competitors. 
All non-profit hospitals are required by federal statute to offer community benefits and charity care to the uninsured. However, it's up to the hospitals themselves to determine this level since Congress has failed to enact any standards.  
As a result of ther non-profit status, hospitals are not required to pay property taxes. According to preliminary estimates by county assessors, without such an exemption, Oregon hospitals would have had to pay more than $38 million in property taxes in 2008. Hospitals also do not pay federal or state income tax. 

Uncompensated care rises

Oregon hospitals also wrote off more than $1 billion in uncompensated care last year. Charity care or free care represented more than half ($600 million), where the hospital agreed to provide free care. The remainder represented bad debt, which means unpaid medical bills that hospitals have given up on trying to collect.
As a percentage of overall revenue, hospitals have been increasing the amount of charity care they provide with urban hospitals delivering a greater share in this regard. Urban hospitals provided uncompensated worth more than 4 percent of their gross revenues compared to 2002 when they wrote off less than 2 percent.

Up Next

In early next year look for our articles on the hospital executive salaries, the tax-exempt bonds hospitals are able to garner and other hospital financial information -- all brought to you by The Lund Report as we seek to create an accountable and transparent healthcare system. 

 For raw financial numbers from OHPR click here >>

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