Friday, November 22, 2013

North Dakota Hospital Profits Will Increase Nicely With Full Rollout of Obamacare

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.

From a review of the Electronic Municipal Market Access (EMMA), I found 3 Non-Profit Hospital Organizations in the State of North Dakota with Net Assets above $100 mil each.  One of these was Sanford Health, which is headquartered in Sioux Falls, South Dakota but with two of its four Regional Medical Centers located in North Bismark and in Fargo.

These 3 Non-Profit Hospital Organizations had very modest operating results in the most recent fiscal year.  But on the upside, the full rollout of Obamacare should substantially improve their profits.

Below here are the most recent audited year's Provision for Bad Debts and Uncompensated Charity Care Costs for each of these 3 North Dakota Non-Profit Hospital Organizations:

One Year One

One Year Estimated Year One

Most Provision Cost of Total Year

Recent For Uncompensated Earnings Hospital

Annual Bad Charity Charge Operating

City FYE Debts Care of Both Income

mils $s mils $s mils $s mils $s
North Dakota Non-Profit Hospital Organizations

Sanford Bismark&Fargo Jun 2013          130                 47          177            31
Altru Health Grand Forks Dec 2012            25                 24            49            13
St. Alexius Medical Center Bismark Jun 2013            13                   2            15             (1)

Total of all 3

         168                 73          241            43

Provision for Bad Debts

Uncompensated Charity Care Costs


Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs


So, these 3 North Dakota Non-Profit Hospital Organizations had Audited Total Hospital Operating Income of $43 mil in the most recent fiscal year audited.  Severely burdening this $43 mil Total Hospital Operating Income were Total Provisions for Bad Debts of $168 mil and Total Costs of Uncompensated Charity Care of another $73 mil.  Thus, exclusive of these two earnings charges, Total Hospital Operating Income would have been $284 mil, which is $241 mil higher than the reported $43 mil Hospital Operating Income.
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.

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

Frankly, 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.