Skip to main content

Hospital Profitability

By June 3, 2016Commentary

A number of hospitals are profitable, some very profitable.  What factors are associated with that profitability is the question answered by research carried in the current health affairs.   (HA Article)   Hospital inpatient is the single biggest category of US health spending and while that growth has moderated, for private health plans, hospital price increases are a major contributor to premium rises.  The authors in this study looked at a wide variety of hospital and market characteristics for around 3250 hospitals to analyze relationships with profitability.  Profitability was measured as net income from inpatient care services per adjusted discharge (note that this was done by using inpatient revenue as a portion of all patient revenue, so it assumes inpatient and outpatient services are equally profitable, which likely isn’t the case).  This limits the effect of ancillary services like parking, gift shops, donations, etc.  The analysis was also adjusted for case-mix (this was done by applying Medicare case-mix to all cases, so could be under or over-stated) and local wage index.

The median US hospital actually had a loss on patient care services of $82 per discharge in 2013, with hospitals in the Northeast having the highest losses and hospitals in the West actually making a profit.  Hospitals with higher cost markups were more likely to be profitable (duh) as were those affiliated with a system and those with regional market power.  Non-profit and public hospitals tended to lose money per discharge while for-profit hospitals, well, they made a profit.  Rural hospitals, those with less than 50 beds and major teaching institutions had larger losses than their opposites.  Those facilities with shorter lengths-of-stay, lower proportions of Medicare patients and lower costs per discharge tended to have higher profits, or lower losses, than their opposites.  Ranked by level of profitability, or lack thereof, 14% of hospitals are highly unprofitable, 41% are unprofitable, 33% are profitable and 12% are highly profitable.  Some highly profitable hospitals were making $1000 per discharge.  Extremely profitable hospitals (the top 2.5%) had very high markups, three-quarters were for-profit, 88% were in a system and almost half had regional power.  Among the top ten hospitals for profitably, seven are actually non-profits and all have market power.  Interestingly, hospitals in states with price regulation were more likely to be more profitable (yep, government regulation is great).  And hospitals in areas with a high percent of uninsured people or with a dominant health plan were less profitable.  Very interesting research, and policymakers should wonder why some “non-profit” hospitals are making so much money.

Leave a comment