Tuesday, October 22, 2013

Which Large Hospital Organizations' Profits Increase the Most Under the ACA and the Expansion of 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 absolutely humongous, especially when compared to the related earnings.

From a review of the Electronic Municipal Market Access (EMMA) for the Non-Profit Hospital Organizations and from a review of SEC filings for the Publicly-Held Hospital Organizations, below here are the 18 Hospital Organizations which had the Total of their Provisions for Bad Debts and Costs of their Uncompensated Charity Care exceed $500 mil for one year in their most recent audited financial statements:





One Year One Year
One



One Year Estimated Total
Year


Most Provision Cost of Earnings One Bottom


Recent For Uncompensated Charge Year Line

State Annual Bad Charity of Operating Pretax

HQs FYE Debts Care Both Income Income



mils $s mils $s mils $s mils $s mils $s
Publicly-Held Hospitals






HCA TN Dec 2012           3,770           2,381           6,151           2,894           2,894
Community Health Systems TN Dec 2012           1,959              125           2,084              619              504
Health Management Assoc FL Dec 2012              874              497           1,371              301              301
Tenet Healthcare TX Dec 2012              785              437           1,222              334              334
Universal Health Services PA Dec 2012              727              177              904              764              764
LifePoint Hospitals TN Dec 2012              624               31              655              244              244




       

Non-Profit Catholic Hospitals



   

Ascension Health Alliance MO Jun 2013           1,173              525           1,698              397           1,123
Dignity Health CA Jun 2013           1,094              198           1,292              284              812
Catholic Health Initiatives CO Jun 2013              821              321           1,142              (55)              490
Catholic Health East PA Dec 2012              235              436              671              118              383
Trinity Health MI Jun 2013              480              183              663              305              666
Providence Health WA Dec 2012              390              272              662              204              412





   

Non-Profit Non-Catholic Hospitals



   

Memorial Hermann Health TX Jun 2013              634              136              770              166              170
Banner Health AZ Dec 2012              488              149              637              290              601
Adventist Health FL Dec 2012              331              302              633              512              508
Cleveland Clinic OH Dec 2012              378              155              533              228              685
Sutter Health CA Dec 2012              376              153              529              549              791
Carolina's Health Care NC Dec 2012              356              153              509              168              375





   

Total all 18

        15,495           6,631         22,126           8,322         12,057





   

Provision for Bad Debts



            15,495         15,495
Uncompensated Charity Care Costs

              6,631           6,631





   

Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs
        30,448    








Bottom Line Pretax Income Excluding Bad Debts and Uncompensated Charity Care Costs
        34,183

So, these 18 Hospital Organizations had Audited Total Operating Income of $8.322 bil in the most recent fiscal year.  Driving down this $8.322 bil Total Operating Income were Total Provisions for Bad Debts of a massive $15.495 bil and Total Costs of Uncompensated Charity Care of another $6.631 bil.  Thus, exclusive of these two earnings charges, Total Operating Income would have been a massive $30.448 bil, which is $22.126 higher than the reported $8.322 bil.

And these 18 Hospital Organizations had Audited Total Bottom Line Pretax Income (both Operating Income and Non-Operating Income) of $12.057 bil in the most recent fiscal year.  Driving down this $12.057 bil Total Bottom Line Pretax Income were Total Provisions for Bad Debts of a massive $15.495 bil and Total Costs of Uncompensated Charity Care of another $6.631 bil.  Thus, exclusive of these two earnings charges, Total Bottom Line Pretax Income would have been a massive $34.183 bil, which is $22.126 bil higher than the reported $12.057 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 monstrous earnings charges are just for 18 Hospital Organizations and 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 monstrous 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.