Thursday, October 24, 2013

Ohio Hospital Profits Will Sharply Increase Since Ohio Expanded Medicaid

Under the Affordable Care Act (ACA), Hospital Organizations' both future Hospital Operating Income and Bottom Line Income will be bolstered very robustly due to many of the Uninsured getting insurance and also due to the many of the Underinsured getting much better insurance.

And for Hospital Organizations operating hospitals in States electing to Expand Medicaid, this future Profit growth will be exceptionally robust.

There are specifically two items which will drive higher Hospital Organization profits due to the ACA and also especially due to States electing the Expansion of Medicaid.

First, there is the Operating Statement Provision for Bad Debts' earnings charge which will be dramatically reduced due to the substantially better insurance situation of hospital patients.  This Provision for Bad Debts' earnings charge is usually a separate report line on a Hospital Organization's audited Operating Statement.

And second, there is the Operating Statement Uncompensated Charity Care Costs' earnings charge for the amounts hospitals spend on charity care which will also be dramatically reduced.  This Estimated Costs for Uncompensated Charity Care is disclosed in a Hospital Organization's footnotes which accompany its audited financial statements.

So what about the amounts of these two items?  Well, they are very large when compared to the related Hospital Operating Income.

From a review of the Electronic Municipal Market Access (EMMA), below here are the most recent audited year's Provision for Bad Debts and Uncompensated Charity Care Costs for the 10 Ohio Non-Profit Hospital Organizations which had Net Assets above $400 mil currently.  I excluded below three Ohio Children's Hospitals: Nationwide Children's Hospital, Children's Hospital Cincinnati and Children's Hospital Medical Center at Akron:

One Year One

One Year Estimated Year One

Most Provision Cost of Total Year

Recent For Uncompensated Earnings Hospital

Annual Bad Charity Charge Operating

FYE Debts Care of Both Income

mils $s mils $s mils $s mils $s
Ohio Hospital Organizations

Cleveland Clinic Health System
Dec 2012              378              155              533          228
Catholic Health Partners
Dec 2012              255              161              416          129
Jun 2012               99              105              204          229
UC Health (Cincinnati)
Jun 2012               80               98              178            33
Premier Health Partners
Dec 2012               45               94              139            47
Summa Health System
Dec 2012               98               38              136            18
University Hospitals Health Systems
Dec 2012               55               53              108            65
ProMedica Health Care
Dec 2012               83               24              107            82
Kettering Health Network
Dec 2012               69               31              100            13
Christ Hospital Health Network
Jun 2012               11               14               25            17

Total all 10

          1,173              773           1,946          861

Provision for Bad Debts

Uncompensated Charity Care Costs


Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs

So, these 10 Ohio Non-Profit Hospital Organizations had Audited Total Hospital Operating Income of $861 mil in the most recent fiscal year audited.  Driving down this $861 mil Total Hospital Operating Income were Total Provisions for Bad Debts of $1.173 bil and Total Costs of Uncompensated Charity Care of another $773 mil.  Thus, exclusive of these two earnings charges, Total Hospital Operating Income would have been $2.807 bil, which is $1.946 bil higher than the reported $861 mil.
Granted these two earnings charges will not be totally eliminated with the ACA and in combination with States electing to Expand Medicaid, but a substantial amount of these two earnings charges will be eliminated, and especially so if States elect to Expand Medicaid, which is the predominant driver of these two earnings charges being very substantially reduced.

And the above two large earnings charges are just for one year.

I really don't understand how a financially savvy State Governor and financially savvy State Legislatures could possibly vote to not Expand Medicaid.  The US Government is 100% funding the first three years of Medicaid Expansion.

Further, if Medicaid is Expanded, the Hospital Organizations will be getting these just huge increases in their annual earnings in each future year, which will ultimately accrue to the benefit of State citizens when they are hospitalized and will be paying much lower hospital charges.  It will also cut the US Debt markedly since the US Government is paying for a good chunk of these hospitalization charges.

All of the above make the fiscal decision pretty straight forward, and Ohio Governor John Kasich did indeed make the right one by Expanding Medicaid.  Ohio citizens should be very pleased with his decision here.

I really can't understand why some other State Governors and State Legislators would want to financially hammer their State Hospital Organizations, their State citizens and the US Government Debt by refusing to Expand Medicaid.

Florida's Rick Scott, who has a particularly keen insight on this issue since he was formerly a CEO of a large hospital organization, already has this all figured out.  And so has the perceptive US stock market which has moved up dramatically the market prices of the common stocks of the Publicly-Held Hospital Organizations.