Wednesday, November 6, 2013

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

From a review of the Electronic Municipal Market Access (EMMA), I found 16 Non-Profit Hospital Organizations headquartered in the State of Texas with Net Assets at the most recent date reported of more than $400 mil each.  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 16 Texas Non-Profit Hospital Organizations, broken down between Texas County District Hospitals and Texas Non-County District Hospitals:



Annual Bottom

Fiscal Line Total Profit

City Year Net Operating Margin

HQs End Income Revenues %

mils $s mils $s
Texas Hospital Organizations

Texas Non-County District Hospitals

Texas  Health Resources Arlington Dec 2012          483             3,725 13.0%
Baylor Health System Dallas Jun 2013          473             4,124 11.5%
The Methodist Hospital System Houston Dec 2012          387             2,331 16.6%
Cook Children's Health Fort Worth Sep 2012          279             1,127 24.8%
Texas Children's Hospital Houston Sep 2012          216             2,044 10.6%
Memorial Hermann HealthCare Houston Jun 2013          170             3,578 4.8%
Christus Health Irving Jun 2013          160             3,701 4.3%
Methodist Healrh System Dallas Dallas Sep 2012          159               969 16.4%
Children's Medical Center Dallas Dec 2012          146             1,052 13.9%
St. Luke's Episcopal Health Houston Dec 2012          123             1,244 9.9%
Baylor College of Medicine Houston Jun 2013            41             1,365 3.0%
Scott & White Healthcare Temple Aug 2012            16             2,047 0.8%

Total all 12 Texas Non-County District Hospitals
      2,653           27,307 9.7%

Texas County District Hospitals

Bexar County Hospital District San Antonio Dec 2012          100               773 12.9%
Dallas County Hospital District Parkland Dallas Sep 2012            33             1,235 2.7%
Tarrant County Hospital District Fort Worth Sep 2012            14               442 3.2%
Harris County Hospital District Houston Feb 2013           (41)               593 -6.9%

Total all 4 Texas County District Hospitals

         106             3,043 3.5%

Total all 16

      2,759           30,350 9.1%

As you can see in the above chart, the Total Bottom Line Profits for these 16 Texas Non-Profit Hospital Organizations was $2.759 bil in the most recent audited fiscal year reported, which was a very robust 9.1% of Total Operating Revenues.  As a comparison, the Combined Bottom Line Profit Margin of the prestigious 30 Dow Industrial companies is just a little bit higher 9.6% of their Total Revenues in the most recent year.

When you compare the 9.1% Total Bottom Line Profit Margin of these 16 Texas 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 Texas Hospital Organizations in the most recent year were on fire.

These very strong bottom line profits of these 16 Texas 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 Texas 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 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 Operating Statement Provision for Bad Debts' earnings charge which will be significantly 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 significantly reduced.  This Estimated Costs for Uncompensated Charity Care is usually 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 13 Texas Non-Profit Hospital Organizations which had Net Assets above $400 mil currently.  I excluded below the three Texas Children's Hospitals located in Houston, Fort Worth and Dallas.  And I added below the one large Texas For-Profit Hospital Organization Dallas-based Tenet Healthcare, an allocation of 25.4% of HCA's consolidated amounts for the 25.4% of HCA's licensed beds located in Texas and an allocation of the 13.9% of Community Health System's consolidated amounts for the 13.9% of Community Health System's licensed beds located in Texas:

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
Texas Hospital Organizations

Texas 25.4% Share of HCA
Dec 2012          958               605      1,563          735
Tenet Healthcare
Dec 2012          785               437      1,222          334
Memorial Hermann Healthcare
Jun 2013          634               136        770          166
Bexar County Hospital District
Dec 2012            82               491        573          100
Harris County Hospital District
Feb 2013
              537        537           (41)
Tarrant County Hospital District
Sep 2012          338               152        490            14
Texas Health Resources
Dec 2012          279               184        463          289
Christus Health
Jun 2013          239               196        435            73
Dallas County Hospital District Parkland
Sep 2012
              409        409            33
Baylor Health Care System
Jun 2012          240               152        392          264
The Methodist Hospital System
Dec 2012          137               178        315          144
Texas 13.9% Share of Community Health Systems
Dec 2012          272                 17        289            86
Scott & White Healthcare
Aug 2012          215                 65        280            65
Methodist Health System Dallas
Sep 2012            67               125        192          116
St Luke's Episcopal Health
Dec 2012            80                 35        115            60
Baylor College of Medicine
Jun 2013            13                 93        106           (16)

Total all 16

      4,339             3,812      8,151       2,422

Provision for Bad Debts

Uncompensated Charity Care Costs


Operating Income Excluding Bad Debts and Uncompensated Charity Care Costs


Note:  Both Harris County Hospital District and Dallas County Hospital District (Parkland) did not disclose the amount of their Provision for Bad Debts.  Bexar County Hospital District did not disclose its Uncompensated Charity Care Costs and the $491 mil shown above is the Revenue Charges Foregone related to Charity Care.

So, these 16 Texas Hospital Organizations had Audited Total Hospital Operating Income of $2.422 bil in the most recent fiscal year audited.  Driving down this $2.422 bil Total Hospital Operating Income were Total Provisions for Bad Debts of $4.339 bil and Total Costs of Uncompensated Charity Care of another $3.812 bil.  Thus, exclusive of these two earnings charges, Total Hospital Operating Income would have been $10.573 bil, which is $8.151 bil higher than the reported $2.422 bil.
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 Texas 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 Texas.

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

With these very strong, ongoing Texas Non-Profit Hospital earnings under Obamacare, the ultimate result should be a significant reduction in hospital patient charges, a significant bending back of the US Long-term Total Health Care Cost Curve and a significant 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.