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

From a review of the Electronic Municipal Market Access (EMMA), I found 34 Non-Profit Hospital Organizations headquartered in the State of California with Net Assets at the most recent date reported of more than $400 mil each.  Included among these 34 is the huge Kaiser Permanente, which is significantly different from the other 33 Non-Profit Hospital Organizations since it is a combination Health Maintenance Organization with more than 9 million members as well as a Hospital Organization.

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 the remaining 33 California 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
California Hospital Organizations
Dignity Health	San Francisco	Jun 2013	812	10,412	7.8%
Sutter Health	Sacramento	Dec 2012	791	9,560	8.3%
Scripps Health	San Diego	Sep 2012	410	2,564	16.0%
Sharp HealthCare	San Diego	Sep 2012	320	2,711	11.8%
City of Hope	Duarte	Sep 2012	266	1,283	20.7%
St. Joseph Health System (1)	Orange	Jun 2013	209	4,956	4.2%
Memorial Health Services	Fountain Valley	Jun 2013	198	2,094	9.5%
Stanford Hospitals and Clinics	Stanford	Aug 2012	195	2,430	8.0%
U Cal, LA Medical Center	Los Angeles	Jun 2012	192	1,820	10.5%
Rady Children's Hospital San Diego	San Diego	Jun 2013	167	811	20.6%
Hoag Memorial Hospital	Newport Beach	Sep 2012	143	932	15.3%
Children's Hospital Central California	Madera	Aug 2012	139	538	25.8%
Adventist Health West	Roseville	Dec 2012	133	2,926	4.5%
Community Medical Centers	Fresno	Aug 2012	132	1,185	11.1%
John Muir Health	Walnut Creek	Dec 2012	129	1,459	8.8%
El Camino Healthcare	Mountain View	Jun 2013	103	713	14.4%
U Cal, San Fran Medical Center	San Francisco	Jun 2012	101	1,977	5.1%
U Cal, San Diego Medical Center	San Diego	Jun 2012	96	1,045	9.2%
Cedars-Sinai Medical Center	West Hollywood	Jun 2012	95	2,576	3.7%
Packard Children's Hospital Stanford	Stanford	Aug 2012	85	980	8.7%
Loma Linda University Medical Center	Loma Linda	Dec 2012	71	1,241	5.7%
Children's Hospital Los Angeles	Los Angeles	Jun 2013	61	866	7.0%
Cottage Health System	Santa Barbara	Dec 2012	53	629	8.4%
Huntington Memorial Hospital	Pasadena	Dec 2012	53	543	9.8%
U Cal, Irvine Medical Center	Orange	Jun 2012	47	735	6.4%
Community Hospital Foundation	Monterey	Dec 2012	39	431	9.0%
U Cal, Davis Medical Center	Sacramento	Jun 2012	35	1,337	2.6%
PIH Health	Whittier	Sep 2012	35	599	5.8%
Torrance Memorial Medical Center	Torrance	Dec 2012	31	515	6.0%
Children's HealthCare Orange County	Orange	Jun 2012	25	541	4.6%
Fremont-Rideout Health	Yuba City	Jun 2012	22	325	6.8%
Washington Township Hospital	Fremont	Jun 2013	1	476	0.2%
Eisenhower Medical Center	Rancho Mirage	Jun 2012	(34)	456	-7.5%
Total all 33			5,155	61,666	8.4%

(1) St. Joseph Health System's Bottom Line Profit of $209 mil above excludes the $1,713 mil economic gain resulting from its affiliation with other Hospital Organizations.

As you can see in the above chart, the Total Bottom Line Profits for these 33 California Non-Profit Hospital Organizations was $5.155 bil in the most recent audited fiscal year reported, which was a very robust 8.4% of Total Operating Revenues.  As a comparison, the Combined Bottom Line Profit Margin of the prestigious 30 Dow Industrial companies is a not substantially higher 9.6% of their Total Revenues in the most recent year.

When you compare the 8.4% Total Bottom Line Profit Margin of these 33 California 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 California Hospital Organizations in the most recent year were on fire.

These very strong bottom line profits of these 33 California 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.

And it wasn't just the current fiscal year where these California Non-Profit Hospital Bottom Line Earnings were so strong.

A Non-Profit Hospital Organization's Net Assets, or its Excess of Total Assets over Total Liabilities, results overwhelmingly from the accumulated Tax-free Bottom Line Profits over time.

Since the beginning of the Obama Administration, these 33 California Non-Profit Hospital Organizations have seen their Total Net Assets grow from $31.539 bil to $52.224 bil at the most recently reported date, or an increase of a massive $20.685 bil, or up 65%. 

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

When the Insurance Exchanges and Medicaid Expansion both kick in in California starting in 2014, these California Non-Profit Hospital Organizations should see their profits increase even more......and by quite a bit more.

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.

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 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 27 California Non-Profit Hospital Organizations which had Net Assets above $400 mil currently.  I excluded below the five large California Children's Hospitals located in LA, San Diego, Stanford, Orange County and Central California as well as the City of Hope in Duarte:

		Most		One Year	One
		Recent	One Year	Estimated	Year	One
		Annual	Provision	Cost of	Total	Year
		Fiscal	For	Uncompensated	Earnings	Hospital
		Year	Bad	Charity	Charge	Operating
		End	Debts	Care	of Both	Income
			mils $s	mils $s	mils $s	mils $s
California Hospital Organizations
Dignity Health		Jun 2013	1,094	198	1,292	284
Sutter Health		Dec 2012	376	153	529	549
St. Joseph Health		Jun 2013	237	93	330	50
Cedars-Sinai Medical Center		Jun 2012	284	43	327	112
Adventist Health West		Dec 2012	156	52	208	133
U Cal, Davis Medical Center		Jun 2012	83	52	135	45
U Cal, San Diego Medical Center		Jun 2012	98	34	132	96
Memorial Health Services		Jun 2013	108	19	127	139
Stanford Hospitals and Clinics		Aug 2012	99	27	126	237
Community Medical Centers Fresno		Aug 2012	114	9	123	132
Scripps Health		Sep 2012	72	39	111	233
Sharp HealthCare		Sep 2012	30	58	88	242
John Muir Health		Dec 2012	61	24	85	129
U Cal, San Francisco Medical Center		Jun 2012	73	7	80	96
Loma Linda University Medical Center		Dec 2012	47	28	75	71
Washington Township Hospital		Jun 2013	72		72	1
U Cal, Los Angeles Medical Center		Jun 2012	40	9	49	230
Community Hospital Foundation Monterey		Dec 2012	31	13	44	29
Cottage Health System		Dec 2012	21	17	38	21
Hoag Memorial Hospital		Sep 2012	29	8	37	56
PIH Health Whittier		Sep 2012	29	7	36	33
Huntington Memorial Hospital		Dec 2012	19	10	29	9
U Cal, Irvine Medical Center		Jun 2012	12	17	29	58
Torrance Memorial Medical Center		Dec 2012	17	8	25	7
Eisenhower Medical Center		Jun 2012	22	3	25	(34)
Fremont-Rideout Health		Jun 2012	21	1	22	23
El Camino Healthcare		Jun 2013	15	2	17	65
Total all 27			3,260	931	4,191	3,046
Provision for Bad Debts						3,260
Uncompensated Charity Care Costs						931
Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs						7,237

So, these 27 California Non-Profit Hospital Organizations had Audited Total Hospital Operating Income of $3.046 bil in the most recent fiscal year audited.  Driving down this $3.046 bil Total Hospital Operating Income were Total Provisions for Bad Debts of $3.260 bil and Total Costs of Uncompensated Charity Care of another $0.931 bil.  Thus, exclusive of these two earnings charges, Total Hospital Operating Income would have been $7.237 bil, which is $4.191 bil higher than the reported $3.046 bil.
 
Granted these two earnings charges will not be totally eliminated with the ACA and in combination with States like California choosing to Expand Medicaid, but a substantial amount of these two earnings charges will be eliminated, and especially so because California elected 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.

It is pretty clear why California astutely chose to Expand Medicaid, especially since the US Government is 100% funding the first three years of Medicaid Expansion.

With these exceptional, ongoing California Non-Profit Hospital earnings under Obamacare, the ultimate result should be a very significant reduction in hospital patient charges, a 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.