Oregon’s For-Profit, Revenue-Rich Hospitals Reap Millions In Federal Payout
Oregon’s only for-profit hospitals – McKenzie-Willamette Medical Center in Springfield and Willamette Valley Medical Center in McMinnville – have long generated big annual payouts for their out-of-state corporate parents.
The two hospitals consistently rank as the state’s most profitable: McKenzie-Willamette averaged a 26% operating profit margin from 2014 to 2018, the latest year for which details are available, while Willamette Valley averaged 22%. The average statewide was in the mid-single digits.
But stellar financial performance and for-profit ownership status have not been obstacles to hospitals benefiting from the pandemic bailout under the recently passed federal Coronavirus Aid, Relief, and Economic Security Act. Both McKenzie-Willamette and Willamette Valley received plenty.
The law, passed in late March as alarm swelled about the spread of the virus, does not take into account hospital reserves or past profits. Instead it awards money in part on a formula based on a hospital’s past volume of elderly Medicare patients. On that basis, the federal government paid Willamette Valley $7.4 million and McKenzie-Willamette $4.5 million in CARES money.
In total, the 87 hospitals nationwide that are owned by Willamette Valley’s parent company, Tennessee-based LifePoint Health, have pulled in at least $427 million in CARES money, an analysis of federal data by The Lund Report found. The 23 hospitals owned by McKenzie-Willamette’s parent company, Tennessee-based Quorum Health Corp., have received a total of $19 million. And one of Quorum’s biggest shareholders asserts that Quorum may receive another $100 million or more under the act.
Some critics say big payments to historically very profitable hospitals show that the CARES Act was poorly designed.
“If a hospital in Oregon had a positive margin on average over the last five years, including 2019, then it should not receive any bailout funds, federal or state,” said Art Suchorzewski, government affairs director for FamilyCare Health, a Portland health insurance nonprofit that is winding down operations after years of disputes with state officials. Suchorzewski said state and federal officials, in their haste to help hospitals, are overlooking the huge investment reserves that many hospital systems have accumulated, and instead are erroneously focusing on the short-term hospital revenue drops caused by the pandemic.
In Oregon, the top 21 hospitals getting CARES money have thus far received a total of at least $430 million. The top recipient is Oregon Health & Science University at $36.8 million -- followed by $18.8 million for Providence St. Vincent Medical Center. A total of 30 Oregon community health centers which serve low-income residents also received money under CARES but the amounts pale in comparison with the hospital bailout: $23 million was split among 30 community centers.
Supporters of the CARES Act say the handouts were needed to help hospitals quickly make up for revenue shortfalls as they cancelled non-emergency procedures, stocked up on protective equipment and awaited an influx of COVID-19 patients. The Senate passed the act unanimously in late March, and the House passed it on a unanimous voice vote, with virtually all members in favor. Oregon’s senators voted for the bill, and the state’s House members all expressed support for it. The act, rushed through, is a sweeping, wide-ranging $2 trillion economic stimulus package, which includes $175 billion for hospitals and other health care providers. Of that money, $50 billion is aimed at hospitals using the Medicare formula.
The money provided to LifePoint and Quorum highlights the wide range of hospitals the CARES Act has helped. LifePoint is financially robust, while Quorum, after struggling for years with heavy debt, is now in U.S. Bankruptcy Court.
LifePoint is a privately held investment company that does not publicly disclose detailed financials. But it had a whopping $1.2 billion in operating profit on revenues of $8.7 billion in 2019, according to Moody’s, the debt rating service. The company’s revenues will be hurt by the pandemic, but will “rebound fairly quickly,” Moody’s predicted. LifePoint has “good liquidity” and at the end of 2019 had more than $900 million in cash, Moody’s reported.
Willamette Valley Medical Center, a small hospital with just 60 beds, has generated big profits for its corporate owners: $94 million in 2014-18, according to filings with the Oregon Health Authority.
LifePoint and Willamette Valley Medical Center spokespeople did not respond to questions from The Lund Report. It is unclear how much the hospital’s revenues have dropped during the pandemic because they declined to release those figures.
McKenzie-Willamette’s corporate owners are in financially poor shape. McKenzie-Willamette, with 113 beds, is the only big profit producer, generating net profits of $230 million in the 2014 to 2018 period. The rest of Quorum’s hospitals typically barely break even, according to financial disclosures by publicly traded Quorum. Burdened with $1.3 billion in debt, Quorum has suffered huge financial losses for years caused in large part by high interest payments, and in April sought shelter from creditors in U.S. Bankruptcy Court as it works on a survival plan. The company has about $1.4 billion in assets, mainly its hospital facilities, and its stock now effectively worthless.
The company in 2019 lost $162 million on revenues of $1.7 billion. An attorney for Quorum told the Bankruptcy Court in May that Quorum expects $60 million in “near term losses” due to the pandemic. The CARES Act money is helping to pay staff and keep hospitals open, he wrote. Under the act, the money must be used to make up for hospital revenue shortfalls caused by the COVID-19 crisis and cover such expenses as staffing and equipment costs.
In a public statement last month, Quorum said it “has remained focused on enabling our community hospitals to continue the important work they are doing in addressing the COVID-19 crisis, acting as good stewards of the CARES Act funds Quorum Health has received to bolster that effort.”
McKenzie-Willamette did not respond to inquiries from The Lund Report. It is unclear how much the hospital’s revenues have dropped as a result of the pandemic.
Federal lawmakers said the Medicare-based CARES formula was designed to be able to get money to hospitals quickly, given the rapidly evolving pandemic.
“The fast and transparent dispersal of funds gives relief to those providers who are struggling to keep their doors open,” the federal Department of Health and Human Services says on its website.
But critics have noted that the effect was to reward large hospital systems that have substantial reserves. Some of the wealthiest hospitals in the country, including Providence Health System based in Renton, WA, which has $12 billion in cash, has reaped over $500 million in CARES money, according to a report in The New York Times.
Suchorzewski, in an email to Oregon lawmakers, urged them to consider the financial reserves of Oregon hospitals, which he estimated totaled $10 billion in 2018.
“This data is critical in understanding the financial health of Oregon’s hospitals across our state and their ability to operate in a health crisis like the one we are in now,” he wrote.
You can reach Christian Wihtol at [email protected].
Jun 8 2020