Friday, November 22, 2013

Arkansas Hospital Profits Will Increase Nicely With Full Rollout of Obamacare

From a review of the Electronic Municipal Market Access (EMMA), I found 5 Non-Profit Hospital Organizations in the State of Arkansas with Net Assets above $100 mil each.

These 5 Arkansas Non-Profit Hospital Organizations, burdened by the State having a very high percentage of its citizens who are uninsured, underinsured or on Medicaid, have generated very modest operating results.  In the most recent audited fiscal year, the Total Bottom Line Profits of these 5 Arkansas Non-Profit Hospital Organizations were only $55 mil, which were down 32% from the prior year, and also were only 2.9% of their Total Operating Revenues.

Enter Obamacare and the Arkansas State Governor Mike Beebe's creative implementation of it in Arkansas, which after full rollout should turn around this dismal financial situation.

Under the Affordable Care Act (ACA), Hospital Organizations' future Hospital Operating 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 large when compared to the related Hospital Operating Income.

After excluding The Arkansas Children's Hospital in Little Rock, below here are the most recent audited year's Provision for Bad Debts and Uncompensated Charity Care Costs for each of the other 4 Arkansas Non-Profit Hospital Organizations with Net Assets above $100 mil:

One Year One  

One Year Estimated Year One

Most Provision Cost of Total Year

Recent For Uncompensated Earnings Hospital

City Annual Bad Charity Charge Operating

HQs FYE Debts Care of Both Income

mils $s mils $s mils $s mils $s
Arkansas Non-Profit Hospital Organizations

Baptist Health Little Rock Dec 2012            68                 26            94           (16)
Jefferson Hospital Association Pine Bluff Jun 2013            11                 14            25             (4)
White River Health Batesville Sep 2012            20                   2            22              2
Conway Regional Medical Ctr Conway Dec 2012            18                   1            19             (3)

Total all 4

         117                 43          160           (21)

Provision for Bad Debts

Uncompensated Charity Care Costs


Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs


So, these 4 Arkansas Non-Profit Hospital Organizations had Audited Total Hospital Operating Loss of $21 mil in the most recent fiscal year audited.  Severely burdening this $21 mil Total Hospital Operating Loss were Total Provisions for Bad Debts of $117 mil and Total Costs of Uncompensated Charity Care of another $43 mil.  Thus, exclusive of these two earnings charges, Total Hospital Operating Income would have been $139 mil, which is $160 mil higher than the reported $21 mil Hospital Operating Loss.
Granted these two earnings charges will not be totally eliminated with the full rollout of the ACA, but a substantial amount of these two earnings charges will be eliminated, and especially so for States electing to Expand Medicaid, which is the predominant driver of these two earnings charges being very substantially reduced.