Cooperating for better care.

Johns Hopkins University Center for Hospital Finance and Management

Tag Archives

Some ‘nonprofit’ hospitals among the most profitable


For Kaiser Health News

When it comes to hospitals, which benefit most from high healthcare prices? It may sound counter-intuitive, but a group of not-for-profit hospitals appear to be among those doing the best business.

At least, that’s the idea in a study published Monday in Health Affairs. It analyzes how hospitals make money and ranks the nation’s 10 most profitable ones — those making hundreds of millions of dollars through their inpatient and outpatient care. Seven were nonprofits, including the top four.

The findings are based on Medicare cost reports from fiscal year 2013, analyzing almost 3,000 acute-care hospitals. About 60 percent were nonprofit, while one in four were for-profit. The rest were public, or government-owned.

The top three were nonprofits. Gundersen Lutheran Medical Center, part of the large Wisconsin-based health system, made the most money: $302.5 million just on its patients. California-based Sutter Medical Center, also part of a large system, came in second. Stanford Hospital, also in California, was third.

Those hospitals share a key attribute, the authors argued. Whether because of their size, their prestige or their influence in the community, they have more power to negotiate prices, meaning that they can charge insurers more for the care they give.

“They are the only provider — or they are clearly the dominant provider — and the insurers in that community are relatively weaker, and there are a lot of them,” said Gerard Anderson, director of the Johns Hopkins University Center for Hospital Finance and Management, and one of the study’s authors. “[The hospitals] can take advantage of their market position. And they do.”

The researchers looked only at profits made from actual medical care, meaning they didn’t factor in the often substantial amount of money hospitals make from sources like investments, grants, donations, parking fees and property rentals. The idea was to focus on what hospitals make from patients alone, said Ge Bai, the study’s primary author. Bai is currently an assistant professor of accounting at Washington and Lee University, though she’s joining the faculty at Johns Hopkins’s Carey Business School in the fall.

Most hospitals — particularly nonprofits — don’t actually earn money from patient care. Rather, a large market share or inclusion in a big health system — like Gundersen — better predicted how well hospitals would do.

“Many of the hospitals best-positioned to earn profits are non-profits — they’re the ones often that have the most prestige, they’re the largest hospitals,” said Paul Ginsburg, the director of the Center for Health Policy at the Brookings Institution and director of public policy at the University of Southern California’s Schaeffer Center for Health Policy and Economics.

Ginsburg, an expert in health economics, wasn’t affiliated with the study.

Market muscle matters in bargaining with insurers. That may be driving the hospital industry trend toward consolidation.

In recent years, many hospitals have merged to form larger health networks. They argue that doing so leads to better service to patients — for instance, care can be coordinated across more locations. In addition, they say they can then better negotiate with insurance companies. The study notes that in markets dominated by insurance companies, hospitals were less likely to profit from patient services.

But mergers have also been shown to increase the cost of healthcare. That’s because they often give hospitals leverage to set higher prices or charge insurance companies more. Likewise, brand-name hospitals, such as those affiliated with prestigious universities, can exert a similar pressure, Bai said. For instance, she explained, if she were shopping for health insurance in Baltimore she wouldn’t buy a plan that didn’t include Johns Hopkins Hospital.

Increased health care costs, the study authors said, are felt by consumers — either in the form of higher health plan premiums, or, in higher hospital bills for patients who don’t have insurance or who receive care out of network. The latter situation happens more often than people expect, Bai said, especially in emergencies, when people don’t have time to pick who’ll treat them.

The study also adds to the debate about whether the tax status of nonprofit hospitals needs more thorough scrutiny, Ginsburg said. They typically don’t have to pay taxes because, the idea goes, they provide a public service. But the paper’s findings “very clearly raise the issue about … whether these hospitals need or deserve the tax exemption.”

That’s an issue federal policy has tried to address, too. The 2010 health law, for instance, included a provision intended to make nonprofit hospitals prove  that they deserve their tax-exemption — increasing the standards for the “community benefit” those hospitals are supposed to provide.

Often, the local hospital is the largest economic engine in a community, and not taxing it means the local governments forgo a significant amount of revenue. The benefit a not-for-profit hospital provides hardly differs from that provided by one that’s for-profit, especially when both types of hospitals have rosy financial outlooks, based on the patient care, Ginsburg said.

Meanwhile, Bai said, the findings also support the notion that hospital mergers need to be better regulated. Setting federal limits on what hospitals can charge for a particular service might also help, she added. Maryland and West Virginia have experimented with that idea. Despite outcry from some executives, the study notes, hospitals in those states are still profiting.

Without that kind of oversight, Bai said, consumers will get shortchanged.

“We’re absolutely paying a higher price,” she said.

Phil Galewitz: New hope for heart patients, and hospital revenues


By PHIL GALEWITZ, for Kaiser Health News


CLEARWATER, Fla. – Inch by inch, two doctors working side by side in an operating room guide a long narrow tube through a patient’s femoral artery, from his groin into his beating heart. They often look intently, not down at the 81-year-old patient, but up at a 60-inch monitor above him that’s streaming pictures of his heart made from X-rays and sound waves.

The big moment comes 40 minutes into the procedure at Morton Plant Hospital here. Joshua Rovin, M.D.,  unfurls from the catheter a metal stent containing a new aortic valve that is made partly out of a pig’s heart and expands to the width of a quarter outside the catheter. The monitor shows it fits well over the old one. Blood flow is normal again.  “This is pretty glorious,” Rovin said.

The surgeon has performed one of the fastest-growing procedures in U.S. heart care known as a transcatheter aortic valve replacement, or TAVR. The operation was approved in the U.S. in late 2011 to help patients too ill or frail for traditional “open-heart” valve surgery. The procedure has rapidly gained doctors’ acceptance, particularly for patients in their 80s and 90s.

For hospitals like Morton Plant, the new valve technology comes at a fortuitous time – just as they confront rapidly falling demand for one of their most lucrative heart procedures, coronary artery bypass surgery. That has been used for more than 40 years to restore blood flow around blocked arteries, but less invasive treatments such as angioplasty have gained favor.

The opposing trends – fewer bypasses, more valve surgeries – demonstrate the hospital industry’s record of finding new ways to fill beds and increase revenue even as advances in health and technology shrink demand for inpatient care.  “Hospitals are like investment bankers, they are always looking for the next big deal and in this regard the next big deal is valve surgery,” said Gerard Anderson, director of the Johns Hopkins University Center for Hospital Finance and Management.

Valve surgery has risen more than 50% since 2012; the annual totals bolstered partly by more TAVR procedures, according to estimates from Frost & Sullivan, a consulting firm. About 16,000 TAVRs were done last year and hospitals are on pace to perform at least 20,000 in 2015, according to a national TAVR registry kept by two major medical groups.

But as with other new medical technology, TAVR draws concerns about possible overuse or adoption by hospitals lacking proficiency, which could harm patients and increase health care costs.

Verdi DiSesa, M.D., chief operating officer at Temple University Health System, said he worries too many hospitals are racing to perform TAVR before science has determined its best use.

TAVR should be limited to “regional centers of excellence” to ensure quality, DiSesa said. But in thePhiladelphia area alone, 10 hospitals, including Temple, offer TAVR in the Philadelphia area alone. Nearly 400 hospitals offer TAVR nationwide.

Hospital officials and device makers see a huge potential market.

About 1.5 million people in the U.S. have aortic stenosis, the narrowing of the aortic heart valve, which obstructs blood flow from the heart to the rest of the body. About 500,000 have severe aortic stenosis, which restricts daily activities such as walking and climbing stairs. Without a new valve, half of those die within two years,according to the Food and Drug Administration.

Yet, a third of patients with severe stenosis are too sick or frail for traditional valve surgery, which involves opening the chest and stopping the heart temporarily, a weeklong hospital stay and months of recovery. In contrast, TAVR requires only tiny incisions, patients can be discharged in two days and recovery usually takes two weeks. Early studies show TAVR’s two-year mortality rate is 32 percent compared to 50 percent for standard treatment combining drugs with a procedure using a balloon-tipped catheter to open the diseased valve.

Bob Howard, a retired intelligence officer at the Defense Department, is enthusiastic about his TAVR. He was the patient on the table the day Kaiser Health News observed his surgery at Morton Plant in August. Two days later, he returned to his Palm Harbor home north of Clearwater.

TAVR has brought new patients to hospitals like Morton Plant that are performing far fewer bypass surgeries than a decade ago.  Cardiac bypass began in the 1960s and ranked among the most expensive high-volume procedures at major medical centers for decades. But after peaking around 2000, demand fell as studies showed many patients fared better with less-invasive angioplasty and stents that prop open narrowing arteries. Increased use of cholesterol-lowering medications also reduced demand.

Nationally, cardiac bypass operations declined more than a third from about 350,000 cases in 2003 to 219,000 in 2010, according to the latest available data from theAmerican Heart Association. The slide has continued, shows data from the Society of Thoracic Surgeons.

From 2010 through 2014, Morton Plant’s coronary bypass cases fell 41 percent to 221. But its valve procedures rose 50 percent to 307. About 40 percent of those were TAVR.

On average, Medicare’s reimbursement rate for TAVR and a coronary bypass are in the same range. Morton Plant’s average reimbursement for TAVR is $38,000, the hospital said. Medicare pays Morton Plant about $30,000 for a coronary bypass. The doctors’ fees are billed separately.

“Our focus is on what does the community need … and how do we position ourselves to offer the leading edge treatments,” said Hoce.

The TAVR program has helped Morton Plant maintain a double-digit operating profit margin the past three years. Morton Plant made an $83 million operating profit last year on $489 million in revenue, a 17 percent margin, according to its latest audited financial statement. That was nearly triple the industry average.

Rovin said the keys to TAVR success are choosing the right patients and intense teamwork among doctors, nurses and technicians in the operating room.

Afterward, Rovin said, patients can often return to playing golf or tennis.

“When patients come back, they and their families are over the moon … This is a patient population that was underserved and I can’t tell you the amount of hugs, kisses and tears and outright joy from patients that feel they get their life back,” he said.

Contact Info

(617) 230-4965

Wellesley, Mass