Hospitals are swimming in cash
Banner Health's academic medical center in Phoenix. Photo: Banner Health
The number of hospital admissions, surgeries and other medical procedures has continued to stay flat in many parts of the country, but that hasn't prevented hospitals from retaining large sums of money and hiring more people.
The big picture: America's rural hospitals are dying. But large not-for-profit hospital systems in cities and suburbs are doing extremely well as premiums rise and as patients struggle to afford their medical bills.
Details: Axios analyzed the financial statements of 31 prominent not-for-profit hospital systems for the first 3 months of 2019.
- This sample collectively generated $68.5 billion of revenue in the first quarter of this year. That's $274 billion annualized, or more than one-fifth of all hospital spending.
- The combined operating margin was 5.1%, compared with 4.5% in the first quarter of 2018.
- The combined net margin (after factoring in investment income) was 16.4%, a large jump from 5.5% in 2018.
- These margins are on par with some pharmaceutical and medical device companies, and well above the margins for insurers and drug distributors.
Between the lines: Hospitals are feasting on bigger investment returns, boosted by the stock market's run, but they also are profiting more from commercial and public health insurer payments.
The intrigue: Not-for-profit hospitals don't pay taxes and don't have "shareholders" like publicly traded companies, so they are required to reinvest any surplus cash into their communities.
- But that money is often directed toward building new patient towers, other construction projects and executive pay instead of charity care or other forms of "community benefit."
Case in point: Newly opened patient towers at Banner Health's academic medical center campuses in Arizona cost $1 billion and "are expected to drive additional volume increases," Banner said in a memo last week to bondholders. Banner declined an interview request.
- "It's clear the hospital industry today continues to be driven by volume, which is where the big returns are," said Paul Ginsburg, director of the USC-Brookings Schaeffer Initiative for Health Policy. "Value-based [payment] approaches conflict with that."