Tuesday, April 15, 2014

Michigan Non-Profit Hospital Organizations Net Income Only 5.8% of Revenues in 2013 and 4.3% in 2012

From a review of audited annual financial statements shown at Electronic Municipal Market Access (EMMA), I found 11 Michigan Non-Profit Hospital Organizations with Net Assets above $400 mil each and which have or will have soon audited financial statements in each of the most recent 4 years.

These 11 Michigan Non-Profit Hospital Organizations generated Total Bottom Line Net Income of a very modest 5.8% of Total Operating Revenues in 2013 and an even more modest 4.3% in 2012.

Only 1 of the 11 Michigan Non-Profit Hospital Organizations posted a Bottom Line Profit Margin of above 8.1% in 2013.

It should be pointed out that these are modest Bottom Line Profits of these largest, financially strongest Michigan Hospital Organizations which even include very robust Investment Returns due to the hot stock market in both 2013 and in late 2012, and thus on an Operating Income (Loss) basis, these Profits are substantially lower in both 2013 and in 2012.

To illustrate this latter point, by far the largest of these Michigan Hospital Organizations is Trinity Health, which had Total Investment Returns of $371 mil in 2013 included in Non-Operating Income, which was higher than its Total Operating Income of $305 mil also in 2013.

Below are the Bottom Line Net Income and Total Operating Revenues for each of these 11 Michigan Non-Profit Hospital Organizations for both 2013 and 2012:

Most 2013


Recent Bottom 2013 2013
Bottom 2012 2012

Fiscal Line Total Net
Line Total Net
Year Net Operating Income
Net Operating Income
Michigan Hospital Organ City HQs End Income Revenues Margin
Income Revenues Margin

mil $s mil $s %
mil $s mil $s %
Non-Profit Hospitals

Lakeland Hospitals St Joseph Sep 13              67            327 20.5%
             58            323 18.0%
Spectrum Health System Grand Rapids Jun 13            318         3,937 8.1%
             81         3,850 2.1%
McLaren Health Care Flint Sep 13            186         2,487 7.5%
           243         2,223 10.9%
Munson Healthcare Traverse City Jun 13              42            564 7.4%
             42            564 7.4%
Trinity Health Livonia Jun 13            666         8,978 7.4%
           367         8,469 4.3%
Sparrow Health System Lansing Dec 13              66         1,144 5.8%
             79         1,125 7.0%
Oakwood Healthcare Dearborn Dec 13              66         1,160 5.7%
             40         1,194 3.4%
MidMichigan Health Midland Jun 13              24            571 4.2%
               7            544 1.3%
Beaumont Health System Royal Oak Dec 13              66         2,275 2.9%
           109         2,243 4.9%
Bronson Healthcare Group Kalamazoo Dec 13              13            516 2.5%
             42            902 4.7%
Henry Ford Health System Detroit Dec 13              14         4,560 0.3%
             37         4,485 0.8%

Total all 11

        1,528       26,519 5.8%
        1,105       25,922 4.3%

More than anything, Hospital Patient Charges drive US Health Care Costs.  When you view a typical US Hospital bill for patient services, it is easy to understand why US Health Care Costs are so much higher than that in any other major country.

One reason US Hospital bills are so high is that many of the larger Non-Profit Hospitals Systems set their pricing for hospital procedures so that they make a lot of money and retain it tax free, further increasing their already massive treasure chest of Investments in Equity and Debt Securities, which also grow tax free.

Thus, US Hospitals are playing a key role in determining ultimately whether health insurance premiums are fairly priced on the health insurance exchanges.

Well, as you can see from the above very modest profit amounts along with my earlier discussion of them, Michigan is one State whose large Non-Profit Hospital Organizations are not being greedy in generating high profits.

With Michigan Hospitals generating such modest profits, a key beneficiary will be Michigan citizens buying health insurance on the Health Insurance Exchange.  Michigan Hospitals, for the most part, have not been nor will they be baking in excessive Hospital profits demands in their negotiations with health insurance companies on pricing for hospital procedures which ultimately determines what insurance premiums are set by health insurance companies on the Health Insurance Exchange. 

Another factor which will help keep insurance premium prices reasonable in the Health Insurance Exchange is that Michigan has wisely elected to expand Medicaid.  This will increase nearly all Michigan Hospital profits substantially and thus permit Michigan Hospitals to be even more reasonable in their negotiations with health insurance companies on pricing for hospital and other health care procedures which ultimately drives what health insurance premiums are set at by health insurers on the Health Insurance Exchange.