Alabama Non-Profit Hospital Earnings On Fire Under Obamacare and Headed Much Higher

From a review of the Electronic Municipal Market Access (EMMA), I found 7 Non-Profit Hospital Organizations headquartered in Alabama with Net Assets at the most recent date reported of more than $200 mil.  Below here are the Bottom Line Profits, Total Operating Revenues  and the related Profit Margin Percentages in the most recent audited fiscal year reported for each of these 7 Alabama Non-Profit Hospital Organizations:

		Most
		Recent
		Annual	Bottom
		Fiscal	Line	Total	Profit
	City	Year	Net	Operating	Margin
	HQs	End	Income	Revenues	%
			mils $s	mils $s
Alabama Hospital Organizations
UAB Health	Birmingham	Sep 2012	174	1,203	14.5%
Children's Hospital Alabama	Birmingham	Dec 2012	64	563	11.4%
City of Huntsville Health Care Auth	Huntsville	Jun 2013	29	969	3.0%
Noland Health Services	Birmingham	Jun 2013	24	139	17.3%
DCH Health Care Authority	Tuscaloosa	Sep 2012	23	454	5.1%
Infirmary Health System	Mobile	Mar 2013	12	597	2.0%
Houston County Health Auth	Dothan	Sep 2012	6	283	2.1%
Total all 7			332	4,208	7.9%

As you can see in the above chart, the Total Bottom Line Profits for these 7 Alabama Non-Profit Hospital Organizations was $332 mil in the most recent audited fiscal year reported, which was a very robust 7.9% of Total Operating Revenues.  As a comparison, the Combined Bottom Line Profit Margin of the prestigious 30 Dow Industrial companies is just a bit higher 9.6% of their Total Revenues in the most recent year.  CEOs of the 30 Dow Industrial companies keenly aware of how difficult it is for them to generate profit margin percentages must be shaking their heads at how Non-Profit Hospitals can be doing so well on the profit margin percentage front.

When you compare the 7.9% Total Bottom Line Profit Margin of these 7 Alabama Non-Profit Hospital Organizations with the 9.6% Total Bottom Line Profit Margin of the 30 Dow Industrials, which are some of the very best For-Profit US companies, the clear conclusion is that the earnings of these Alabama Hospital Organizations in the most recent year were on fire.

These very strong bottom line profits of these 7 Alabama Non-Profit Hospital Organizations were attributable to superb fiscal measures and much more effective health care delivery adopted by hospital executives and hospital employees, which were initiated in conjunction with Obamacare.  In addition, the strong US stock market and lower interest rates added to investment returns and thus also to bottom line profits of these Hospital Organizations.

But there's much more to this incredibly positive earnings story.

When the Insurance Exchanges kick in starting in 2014, these Alabama Non-Profit Hospital Organizations should see their profits increase even much more.

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

Bottom Line Income is a combination of Hospital Operating Income and Non-Operating Income, with the latter being predominantly Investment Returns.

There are specifically two items which will drive higher Hospital Organization profits due to the ACA.

First, there is the Provision for Bad Debts' earnings charge which will be significantly reduced due to the substantially better insurance situation of hospital patients due to the ACA.  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 Uncompensated Charity Care Costs' earnings charge for the amounts hospitals spend on charity care which will also be significantly reduced.  This Estimated Costs for Uncompensated Charity Care is usually disclosed in a Hospital Organization's footnotes which accompany its audited financial statements.

But to supercharge the Hospital Profit improvement, the key is to maximize the number of Alabama residents who will switch from being uninsured to insured and who will switch from being underinsured to much better insured.  And the best supercharged fuel here to make this happen is for the State of Alabama to elect to Expand Medicaid.  US States like Alabama with a very high number of uninsured and underinsured are the ones whose future Hospital Earnings have the best shot of exploding upwardly if Medicaid is Expanded.
 
So what about the amounts of these two items.....Provision for Bad Debts and Uncompensated Charity Care Costs?  Well, they are very large when compared to the related Hospital Operating Income, especially in a State with a high number of both uninsured and underinsured like Alabama.

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 above 7 Alabama Non-Profit Hospital Organizations which had Net Assets above $200 mil currently. 

In addition, I added below an allocation of 8.6% of Ascension Health's consolidated amounts based on the 8.6% of Ascension Health's total available acute hospital beds located in Alabama, 8.7% of For-Profit Community Health Systems consolidated amounts based on the 8.7% of Community Health System's total licensed beds located in Alabama, and 4.8% of For-Profit Tenet Health Care's consolidated amounts based on the 4.8% of Tenet Health Care's total licensed beds located  in Alabama:

				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
Alabama Hospital Organizations
UAB Health		Sep 2012	237	217	454	105
Alabama 8.7% of Community Health		Dec 2012	170	11	181	54
Alabama 8.6% of Ascension Health		Jun 2013	101	45	146	34
Houston County Health Auth		Sep 2012	102	33	135	3
Infirmary Health System		Mar 2013	84	4	88	(8)
DCH Health Care Authority		Sep 2012	61	22	83	14
Alabama 4.8% of Tenet Health		Dec 2012	38	21	59	16
City of Huntsville Health Care Auth		Jun 2013	32	19	51	33
Children's Hospital Alabama		Dec 2012	17	1	18	30
Noland Health Services		Jun 2013	4	-	4	24
Total all 10			846	373	1,219	305
Provision for Bad Debts						846
Estimated Costs of Uncompensated Charity Care						373
Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs						1,524

Note:  UAB Health and Baptist Health Care Authority did not disclose their Uncompensated Charity Care Costs numbers.  Thus the above amounts for these two are the Charity Care Charges Foregone in the current fiscal year.


So, these 10 Alabama Hospital Organizations had Audited Total Hospital Operating Income of $305 mil in the most recent fiscal year audited.  Driving down this $305 mil Total Hospital Operating Income were Total Provisions for Bad Debts of $846 mil and Total Costs of Uncompensated Charity Care of another $373 mil.  Thus, exclusive of these two earnings charges, Total Hospital Operating Income would have been $1.524 bil, which is a massive $1.219 bil higher than the reported $305 mil.
 
Granted these two earnings charges will not be totally eliminated with the ACA, but a very significant amount of these two earnings charges will be eliminated.  The percentage of these two charges eliminated will not be nearly as high in Alabama since it has chosen not to expand Medicaid as it will be in the States electing to expand Medicaid.  But it will still be a very significant percentage reduction in Alabama.

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

With these very strong, ongoing Alabama Hospital earnings under Obamacare, the ultimate result should be a reduction in hospital patient charges, a bending back of the US Long-term Total Health Care Cost Curve and a reduction in the US Debt.  And if Alabama eventually sees the light and elects to Expand Medicaid, after all there is virtually no cost to the State for Expanding Medicaid, the ultimate result should be a substantial reduction in hospital patient charges, a very significant bending back of the US Long-term Total Health Care Cost Curve and a substantial reduction in the US Debt.

That's quite a financial Trifecta!

And it also only makes sense that some of these huge past and future bottom line profits of these US Hospital Organizations, both Non-Profit and For-Profit ones, should be used to wisely fund a substantial portion of the elimination of the US Government Sequester Cost Cuts over the next several years which are now being negotiated by 29 US Congressional members of the Bicameral Committee Conference on Budget Negotiations.  Both clear-thinking Republicans and clear-thinking Democrats should be on board with this wise funding vehicle.  





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