Wednesday, October 23, 2013

Pennsylvania Hospital Profits Will Sharply Increase If Medicaid Is Expanded

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, especially when compared to the related Hospital Operating Income.

From a review of the Electronic Municipal Market Access (EMMA) and the SEC filings, below here are the most recent audited year's Provision for Bad Debts and Uncompensated Charity Care Costs for the 15 Pennsylvania Hospital Organizations which had Net Assets above $400 mil currently.  I excluded the Philadelphia Children's Hospital: 

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
Pennsylvania Hospital Organizations

Universal Health Services
Dec 2012              727              177              904              764
Catholic Health East
Dec 2012              235              436              671              118
UPMC (Pittsburgh) Jun 2013              212               99              311              140
University Penn Health
Jun 2013              191                 9              200              185
St Luke's Univ Health
Jun 2012               86               98              184               17
Jefferson Health System
Jun 2013              115               15              130              239
Lehigh Valley Health
Jun 2012              106               24              130               83
Geisinger Health System
Jun 2013               59               30               89              163
WellSpan Health
Jun 2012               54               20               74               49
Reading Hospital
Jun 2012               49                 8               57               34
Pinnacle Health
Jun 2013               43                 8               51               53
Lancaster General Health
Jun 2012               37                 9               46               28
Guthrie Health
Jun 2013               39                 3               42               12
Albert Einstein Health Care
Jun 2013               23               19               42              (27)
Abington Health
Jun 2013               27               12               39               21
Susquehana Health
Jun 2012               24                 2               26               10

Total all 16

          2,027              969           2,996           1,889

Provision for Bad Debts

Estimated Costs of Uncompensated Charity Care


Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs           4,885

So, these 15 Pennsylvania Hospital Organizations had Audited Total Hospital Operating Income of $1.889 bil in the most recent fiscal year.  Driving down this $1.889 bil Total Hospital Operating Income were Total Provisions for Bad Debts of a massive $2.027 bil and Total Costs of Uncompensated Charity Care of another $0.969 bil.  Thus, exclusive of these two earnings charges, Total Hospital Operating Income would have been $4.885 bil, which is $2.996 bil higher than the reported $1.889 bil.
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.

I really can't understand why some State Governors and State Legislators would want to financially hammer their State Hospital Organizations, their State citizens and the US Government Debt load like this.

Very financially astute Republican State Governors like Ohio's John Kasich and Florida's Rick Scott, who also has a keen insight on this issue since he was formerly a CEO of a large hospital organization, already have this all figured out.  And so has Arizona Republican Governor Jan Brewer.

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.  For instance, Pennsylvania-HQed Universal Health Services had its stock price close yesterday at $80.06, which was a 323% increase from the $18.94 it was trading at just before the Obama Administration took office.