Thursday, February 28, 2013

US Non-Profit Hospital Net Assets Up 65% Under Obama

Probably more than anything else, the long-term financial status of US Non-Profit Hospitals will determine ultimately how successful the Affordable Care Act will be.

The key single measure of the financial strength of a Non-Profit Hospital Organization is its Net Assets, the excess of its Total Assets over its Total Liabilities.

The Net Assets of Non-Profit Hospitals were very dismal after the 2008 financial meltdown.  Since then, with much stronger stock and bond markets, coupled with the positive impact of much lower interest rates due to Fed Action, both happening during the Obama Administration, the Net Assets of Non-Profit Hospital Organizations have grown dramatically.

The Affordable Care Act also helped much here.  The very thorough intellectual discourse on health care delivery by many bright people working in the Health Care industry, as well as by US Government personnel, resulted in fiscal measures adopted that has added significantly to the financial strength of Non-Profit Hospital Organizations.

From a review of the excellent EMMA system, I found 39 US Non-Profit Hospital Organizations which had December fiscal year ends and which also had Net Assets above $1 billion at September 2012, the most recent date's financial statements reported for the huge majority of these hospitals.







Obama







Bump




9 Months

3 3/4




2012

Years


9-30-12 12-31-11 %
12-31-08 %


Net Assets Net Assets Change
Net Assets Change


mil $s mil $s

mil $s








Kaiser Permanente CA 16,311 12,495 31%
11,431 43%
Sutter Health CA 7,289 6,528 12%
4,298 70%
Providence Health WA 6,571 5,401 22%
3,911 68%
Adventist Health System FL 5,612 5,146 9%
3,407 65%
Mayo Clinic MN 5,290 4,729 12%
2,326 127%
Cleveland Clinic Health System OH 4,946 4,361 13%
2,715 82%
BJC Healthcare MO 4,440 4,031 10%
2,705 64%
Memorial Sloan-Kettering Cancer Center NY 4,174 3,941 6%
3,224 29%
Advocate HealthCare Network IL 4,061 3,560 14%
1,842 120%
The Methodist Hospital System TX 3,731 3,406 10%
2,375 57%
New York and Presbyterian Hospital NY 3,504 3,228 9%
2,333 50%
Carolinas Health Care System NC 3,502 3,189 10%
2,340 50%
Inova Health System VA 3,446 3,019 14%
1,885 83%
Catholic Health East PA 3,406 3,142 8%
1,978 72%
Indiana University Health IN 3,385 2,859 18%
1,434 136%
Banner Health AZ 3,355 2,897 16%
1,669 101%
Texas Health Resources TX 3,128 2,757 13%
1,921 63%
SCL Health Systems KS 2,814 2,686 5%
2,571 9%
BayCare Health System FL 2,708 2,417 12%
1,523 78%
Sentara HealthCare VA 2,708 2,406 13%
1,489 82%
Catholic Health Partners OH 2,494 2,261 10%
1,614 55%
Children's HealthCare Atlanta GA 2,467 2,193 12%
1,482 66%
North Shore Long Island Jewish Health NY 2,432 2,190 11%
614 296%
Novant Health NC 2,056 1,877 10%
1,557 32%
Franciscan Alliance IN 2,040 1,874 9%
1,463 39%
Iowa Health System IA 1,895 1,732 9%
1,067 78%
Allina Health System MN 1,606 1,409 14%
804 100%
SSM HealthCare MO 1,557 1,324 18%
933 67%
Adventist Health West CA 1,500 1,379 9%
969 55%
Henry Ford Health System MI 1,418 1,360 4%
1,053 35%
University Hospitals Health System OH 1,393 1,300 7%
1,078 29%
ProMedica Health Care OH 1,391 1,288 8%
1,042 33%
Nationwide Children's Hosital OH 1,376 1,210 14%
761 81%
Children's Medical Center of Dallas TX 1,353 1,219 11%
821 65%
Presbyterian Health Care Services NM 1,340 1,191 13%
706 90%
Fairview Health Services MN 1,234 1,113 11%
732 69%
Multicare Health System WA 1,211 1,113 9%
650 86%
John Muir Health CA 1,196 1,099 9%
756 58%
St Luke's Episcopal Health System TX 1,050 964 9%
692 52%






Total all 39
125,390 110,294 14%
76,171 65%

Yeah, it seems incredible, but the Total Net Assets of these Non-Profit Hospital Organizations have increased by a massive 65% during the Obama Administration.....for the 3 3/4 years from December 2008 to September 2012.

And the Total Net Assets of these Non-Profit Hospital Organizations increased by 14% in just the most recent 9 months. 

So, just what kinds of Assets do Non-Profit Hospitals have?

When you think of Hospital assets, what quickly comes to mind are huge Buildings, Land, and Hospital Equipment.

In a recent study I performed, as probably a surprise to many, Total Investments of Non-Profit Hospital Organizations comprise 43% of Total Assets, higher than Total Property, Plant and Equipment, which comprises 37% of Total Assets.

Why is this the case?

Well, the decades of tax-free hospital profits and tax-free investment returns are by far the predominant driver of the growth in the treasure chest of Non-Profit Hospital Organizations' Investments in equity and debt securities.

So, what's the downside to these huge buildups in both Investments and in Net Assets?

Well, they don't reduce health care costs.  What has to happen is that when Net Assets become so huge, the Non-Profit Hospital must return much of this excess to hospital patients and to the US Government through substantial reductions in fees charged the patient by the hospital.

Most of these Non-Profit Hospital Organizations are already making very robust Hospital Operating Profits.

In addition, they are now generating very nice investment returns, from their huge treasure chest of Investments in debt and equity securities, which are not included in their Hospital Operating Income.

And the overwhelming majority of these Non-Profit Hospital Organizations will be making just extravagantly obscene Hospital Operating Profits, starting in 2014 and 2015, given the huge earnings increases which will result from both the lower Provisions for Bad Debts as well as from the previously Foregone Revenues from Charity Care Patient Services, both due to the Affordable Care Act totally kicking in then.  This is due to many of the uninsured than getting insured and to many of the underinsured then getting better insured.

For the US Congress to reduce Medicare and Medicaid benefits on lower and middle income citizens in order to reach a Grand Bargain on US Debt, when at the same time, these Non-Profit Hospital Organizations will be making such extravagantly obscene profits, and accumulating such an incredibly huge amount of Net Assets, would take US Congressional mean-spiritedness and ineptitude to a completely different level.

Rather than reducing the US Debt by reducing Medicare and Medicaid benefits the elderly receive, a far better way to reduce US Debt is by cutting Medicare and Medicaid costs resulting from the substantial financial strengthening (i.e. Net Assets) of Non-Profit Hospital Organizations, which will give them the financial flexibility to reduce markedly their Patient Service Fees charged.

Not only will this substantially reduce Medicare and Medicaid costs in the long run, but it will also cut health care costs of businesses and of individuals.  Thus, it will also bend down sharply the long-term health care cost curve.

Even though the Affordable Care Act has already substantially strengthened the Net Assets of Non-Profit Hospital Organizations, there is so much more that needs to be done to drive down total US health care costs.

And the hospitals are where this huge opportunity exists to dramatically further bring down the total US health care costs.  There needs to be an all-out assault on the elimination of all extravagant and unnecessary costs incurred by Non-Profit Hospital Organizations.

And there also must be certainty that this excess buildup in Net Assets of Non-Profit Hospitals gets transferred to hospital patients in lower patient service fees.
 
The ultimate beneficiary of these massive buildups of Net Assets of Non-Profit Hospital Organizations are the ones paying the hospital bills.....the US Government, State Governments, businesses, and individuals.

Let's hope the US Congress can properly redirect its attention from attempting to cut Medicare and Medicaid Benefits so much to the true main problems causing the very high US health care costs which are the excessive profits and Net Asset buildups of the Non-Profit Hospital Organizations, both now and even more so in the future, and the massive amounts of inefficiencies in health care delivery.

 

US Non-Profit Hospital 9 Months 2012 Profits Up 226%

From a review of the excellent EMMA system, I found 39 US Non-Profit Hospital Organizations with Net Assets above $1 billion each, which have December fiscal year ends, and which also reported their operating statements for the 9 months ended September 2012, the most recent date's financial statements reported for the huge majority of these hospitals.

How did they do?

Well first, below here's the Total Operating Revenues for each of them for the 9 months ended September 2012 and 2011:



9 Mos 9 Mos


Sept Sept


2012 2011


Total Total


Operating Operating %

HQs Revenues Revenues Change


mils $ mils $





Kaiser Permanente CA 37,962 35,757 6%
Providence Health WA 7,757 6,309 23%
Sutter Health CA 7,179 6,679 7%
Mayo Clinic MN 6,542 6,182 6%
Adventist Health System FL 5,465 5,144 6%
North Shore Long Island Jewish Health NY 4,962 4,572 9%
Cleveland Clinic Health System OH 4,621 4,344 6%
Indiana University Health IN 4,129 3,172 30%
Banner Health AZ 3,650 3,570 2%
Henry Ford Health System MI 3,491 3,105 12%
Advocate HealthCare Network IL 3,444 3,294 5%
Catholic Health East PA 3,321 2,942 13%
Sentara HealthCare VA 3,222 2,893 11%
Carolinas Health Care System NC 3,092 2,739 13%
BJC Healthcare MO 2,881 2,717 6%
New York and Presbyterian Hospital NY 2,850 2,670 7%
Catholic Health Partners OH 2,845 2,657 7%
Texas Health Resources TX 2,753 2,557 8%
Novant Health NC 2,656 2,432 9%
SSM HealthCare MO 2,489 2,241 11%
Allina Health System MN 2,420 2,356 3%
Fairview Health Services MN 2,391 2,183 10%
Adventist Health West CA 2,175 1,959 11%
Memorial Sloan-Kettering Cancer Center NY 2,110 2,018 5%
Iowa Health System IA 2,036 1,699 20%
SCL Health Systems KS 2,024 1,909 6%
Franciscan Alliance IN 1,943 1,725 13%
The Methodist Hospital System TX 1,838 1,676 10%
BayCare Health System FL 1,821 1,708 7%
University Hospitals Health System OH 1,675 1,570 7%
Inova Health System VA 1,656 1,625 2%
Presbyterian Health Care Services NM 1,553 1,432 8%
Multicare Health System WA 1,119 1,032 8%
Nationwide Children's Hosital OH 1,094 954 15%
John Muir Health CA 1,055 1,009 5%
ProMedica Health Care OH 1,049 1,005 4%
St Luke's Episcopal Health System TX 933 926 1%
Children's HealthCare Atlanta GA 822 753 9%
Children's Medical Center of Dallas TX 774 744 4%




Total all 39
145,799 134,259 9%

So clearly these 39 Hospital Organizations did just fine on the Revenue side, with Total Operating Revenues of $145.8 bil for the 9 Months Ended Sept 2012, up a robust 9% over the prior year.

And every one of the 39 Hospital Organizations had their Revenues increase.....talking about being recession resistant! 

Think about the private sector.  The Total Revenue increase for publicly-held companies for the same period was low single digits.

So why do these Hospital Organizations do so incredibly well in Total Operating Revenues?  Well, part of it is the aging population.  But more importantly, they are effectively monopolies in their local communities.  People go to the hospital when they are really sick.  It's a seller's market.  Hospitals can charge whatever they want and they do.  This is not right.....not even close to being right.

OK, so what about on the earnings front.  Well, below here's the Total Operating Income for each of these 39 Non-Profit Hospital Organizations for the 9 months ended September 2012 and 2011:



9 Mos 9 Mos


Sept Sept


2012 2011


Operating Operating %


Income Income Change


mils $ mils $





Kaiser Permanente CA 1,492 1,340 11%
Sutter Health CA 472 551 -14%
Indiana University Health IN 419 136 208%
Adventist Health System FL 360 281 28%
Mayo Clinic MN 278 493 -44%
Banner Health AZ 230 248 -7%
Texas Health Resources TX 218 129 69%
Advocate HealthCare Network IL 199 204 -2%
Sentara HealthCare VA 188 203 -7%
New York and Presbyterian Hospital NY 175 112 56%
Cleveland Clinic Health System OH 174 226 -23%
Inova Health System VA 167 154 8%
BJC Healthcare MO 132 129 2%
BayCare Health System FL 121 106 14%
Allina Health System MN 121 157 -23%
Novant Health NC 117 49 139%
Carolinas Health Care System NC 109 122 -11%
Providence Health WA 106 187 -43%
Children's HealthCare Atlanta GA 104 94 11%
Memorial Sloan-Kettering Cancer Center NY 103 138 -25%
Adventist Health West CA 102 65 57%
Catholic Health Partners OH 100 88 14%
The Methodist Hospital System TX 97 119 -18%
North Shore Long Island Jewish Health NY 96 93 3%
Multicare Health System WA 87 53 64%
Fairview Health Services MN 79 1 7800%
SSM HealthCare MO 76 48 58%
Nationwide Children's Hosital OH 74 66 12%
Franciscan Alliance IN 74 63 17%
John Muir Health CA 54 52 4%
Presbyterian Health Care Services NM 53 56 -5%
Children's Medical Center of Dallas TX 52 92 -43%
Catholic Health East PA 49 40 23%
ProMedica Health Care OH 47 65 -28%
St Luke's Episcopal Health System TX 44 32 38%
University Hospitals Health System OH 42 26 62%
Iowa Health System IA 38 54 -30%
Henry Ford Health System MI 32 31 3%
SCL Health Systems KS 22 4 450%




Total all 39
6,503 6,107 6%





% of Total Operating Revenues
4.46% 4.55%

So, Total Hospital Operating Income is up 6%, and as a % of Revenues is down very modestly.  So, that all makes sense.....nothing really unusual.  But still, that is $6.5 bil of Total Operating Profit for Non-Profit Hospitals.

But, now let's get to the real story.  Below here's the Total Bottom Line Profit or Loss for each of these 39 Non-Profit Hospital Organizations for the 9 months ended September 2012 and 2011.  The difference between Hospital Operating Income and Bottom Line Profit or Loss is mainly how the hospitals are doing with their investment returns on their massive amounts of Investments in Debt and Equity Securities.  And it's also how well they are doing with all of their financial derivative (yeah, that dirty word again), not just on their investments, but also on their debt.




9 Mos


9 Mos Sept


Sept 2011


2012 Bottom


Bottom Line


Line Profit %


Profit (Loss) Change


mils $ mils $





Kaiser Permanente CA 2,087 1,539 36%
Providence Health WA 1,072 269 299%
Sutter Health CA 700 456 54%
Indiana University Health IN 553 140 295%
Advocate HealthCare Network IL 481 (39) 1333%
Cleveland Clinic Health System OH 480 51 841%
Banner Health AZ 455 (40) 1238%
Mayo Clinic MN 434 426 2%
Texas Health Resources TX 394 88 348%
BJC Healthcare MO 385 16 2306%
Adventist Health System FL 342 335 2%
The Methodist Hospital System TX 305 (76) 501%
Sentara HealthCare VA 301 236 28%
Carolinas Health Care System NC 300 18 1567%
BayCare Health System FL 291 12 2325%
Inova Health System VA 283 205 38%
Catholic Health East PA 277 (6) 4717%
Children's HealthCare Atlanta GA 259 22 1077%
New York and Presbyterian Hospital NY 253 61 315%
Memorial Sloan-Kettering Cancer Center NY 252 (16) 1675%
Catholic Health Partners OH 242 188 29%
North Shore Long Island Jewish Health NY 224 57 293%
Novant Health NC 181 25 624%
Franciscan Alliance IN 179 (25) 816%
SSM HealthCare MO 178 (63) 383%
Allina Health System MN 171 78 119%
Nationwide Children's Hosital OH 152 5 2940%
Iowa Health System IA 150 (23) 752%
ProMedica Health Care OH 146 (11) 1427%
Presbyterian Health Care Services NM 146 (37) 495%
Multicare Health System WA 144 5 2780%
SCL Health Systems KS 132 (44) 400%
Fairview Health Services MN 130 (75) 273%
Children's Medical Center of Dallas TX 109 64 70%
Adventist Health West CA 102 65 57%
St Luke's Episcopal Health System TX 85 (176) 148%
John Muir Health CA 54 52 4%
Henry Ford Health System MI 32 31 3%
University Hospitals Health System OH 25 22 14%




Total all 39
12,486 3,835 226%





% of Total Operating Revenues
8.56% 2.86%

No, those above numbers aren't misprints.  The Total Bottom Line Profit of these 39 Non-Profit Hospital Organizations was $12.5 bil for the 9 months ended Sept 2012, up an off-the-charts 226% over the prior year.  And not a dime of US Federal Income Tax is Paid on this $12,486 mil of Profit.

And for the 9 months ended Sept 2012, the Total Bottom Line Profit was 8.56% of Total Operating Revenues, which was nearly double the Total Hospital Operating Income margin of 4.46%.

And the Total Bottom Line Profit for the 9 months ended Sept 2012 was $12,486 mil, $5,983 mil higher than the Total Hospital Operating Income of $6,503 mil for the same period.

So, what's going on here?  There's both a positive and a negative story.

On the very positive side, these hospital organizations did a much better job in having their massive investment portfolio managed in 2012.  And they also did a much better job with their financial derivatives on both their investment portfolio and on their debt in 2012.  And the overall markets were better. 

Also on the positive side, Providence Health had a $767 mil Contribution from Swedish Affiliation in 2012 which bolstered its Bottom Line Profit.

But what's with the massive drop in Bottom Line Profit as compared with Hospital Operating Income in the 9 months ended Sept 2011?  On a long-term basis, you should see a nice average annual increase here due to the interest income on the investments in debt securities and the dividends on the investments in equity securities.

But for the 9 months ended Sept 2011, the Total Hospital Operating Income was $6,107 mil, while the Total Bottom Line Profit was a much $3,835 mil, or a drop of $2,272 mil.  And yeah, that's in comparison to a comparable increase of $5,983 mil in the 9 months ended Sept 2012, a profit swing of a massive $8,255 mil.

Frankly, it doesn't make any sense to me why there would be such a huge $2,272 mil drop between Total Hospital Operating Income and Total Bottom Line Profit in the 9 months ended Sept 2011.

These large investment portfolios of hospital organizations are managed by the large financial institutions (yeah, that dirty word again).  And they also manage the financial derivatives (yeah, that dirty word again too) of the investment portfolios and debt of hospital organizations.

Someone needs to review just what was going on here with how these big financial institutions are managing this massive amount of money of these hospital organizations.  I don't think the hospital organizations have people that really understand what is going on here, particularly with all of these complex financial derivatives.  And I also don't think the Board of Directors of these non-profit hospital organizations really understand them either.

When you think about it, how well the massive investments and financial derivatives of these non-profit hospital organizations perform will eventually get reflected in US total health care costsThe ultimate beneficiary of these hospital investment returns are the ones paying the hospital bills.....the US Government, State Governments, businesses, and individuals.  But none of these beneficiaries are reviewing these investment returns.  This is a key missing link to bending down the long-term US health care cost curve.

Just the thought of the US Congress very aggressively trying to massively cut Medicare, Medicaid, and Social Security Benefits, while at the same time, no one in the US Government is reviewing what is going on with these massive amounts of investments in debt and equity securities of hospital organizations or what is going on with financial derivatives of these hospital organizations should be enough to flat out enrage retired and near-retired US citizens.

And just the fact that these 39 Non-Profit Hospital Organizations can generate $12.5 bil of Total Bottom Line Tax-free Profits in just the first 9 months of 2012, which was an increase of 226% over the prior 9 month period, while at the same time, the US Congress aggressively tries to cut Medicare, Medicaid and Social Security Benefits, should also be enough to enrage retired and near-retired US citizens.  The way you remove excessive bottom line profits of Non-profit hospital organizations is to reduce the incredibly high fees charged to the hospital patient.  It's that simple.

Wednesday, February 27, 2013

US Debt Reduction Sequester Tax Solution #40: Eliminate Financial Instrument Tax Loopholes

The financial industry has attracted many exceptionally bright people, and that is fine.  The problem is that some of them are also exceptionally devious.  And when you combine exceptionally bright with exceptionally devious, and also add in weak US Government oversight, you are going to eventually have serious problems with the US economy as a whole, as what happened with the 2008 financial meltdown.

Financial instruments are extremely complex, and get more so every day.  The financial people that are involved with creatively designing them are brilliant, and unfortunately some of them are also devious.

And there are many of these financial instruments which have been designed just to take advantage of tax breaks.

For instance, a common one is to obtain a Short-term Ordinary Tax Loss on the front end in combination with a Long-term Capital Gain in the long run.  The tax benefits here are twofold.  First, the tax loss is taken much earlier than the capital gain is recognized.  And second, and more importantly, the ordinary tax loss is taken with a much higher tax benefit rate of as much as 39.6% but the capital gain is taxed at a maximum tax rate of only 20%.

This isn't right.....not even close to being right.

Thus I am in complete agreement with Dave Camp, the Republican head of the US House Ways and Means Committee, when he proposes the following tax loophole closer related to financial derivatives:  All financial derivatives should be marked to market value at the end of each tax year, with the resultant change in market value being treated for US federal income tax purposes as ordinary gain or ordinary loss in that year.

And there are many other tax loophole closers he recommends related to financial derivatives and other financial products included in his Draft for Discussion on Financial Products.  I agree with nearly all of them.

I don't know if the CBO has scored this Draft Discussion yet, but I am certain that the US Government Tax Revenues raised from it over the next ten years are truly monumental.

We couldn't be further apart on most economic issues, but what Camp and the House Ways and Means Committee he chairs has done here is exceptional work and they deserve a lot of gratitude from the American people for this.

Closing these egregious tax loopholes related to financial derivatives is a much fairer way to reduce the US Debt then to reduce either the much needed US government social safety net in these times of continuing high unemployment and high underemployment or the wise US Government investments in research, education and energy.

US Debt Reduction Sequester Tax Solution #39: Use Chained CPI For High Income Taxpayers

Taxpayers who came out by far the best with the tax legislation which resulted from the recent fiscal cliff negotiations were those whose taxable income was between $200,000 and $500,000.

Thus in this recommendation I am focusing on improving the general price CPI index adjuster that is presently used in the Tax Code related to high income taxpayers.

Most studies have shown that a chained CPI index is more accurate than the CPI, especially as it relates to high income taxpayers.

Thus, my recommendation is that the chained CPI be used instead of the general CPI all throughout the Tax Code to adjust for annual inflation for all high income taxpayers.

For instance, the tax schedule for married filing jointly for 2013 has a tax rate of 36% for taxable income above $217,450 and of 39.6% for taxable income above $388,350.  Thus my recommended change would be to adjust these taxable income amounts in all subsequent years by using the chained CPI instead of the general price CPI.

This is a much fairer way to reduce the US Debt then to reduce either the much needed US government social safety net in these times of continuing high unemployment and high underemployment or the wise US Government investments in research, education and energy.