The Private Option – Hospitals

January 9, 2015

Hospital Growth and the Private Option

Introduction

Hospitals and others from the Healthcare Industry from across the country adamantly supported Medicaid expansion in Arkansas, known as the private option. This support came through various methods including testimony to the general assembly, and resoundingly through campaign contributions to supporters and advocates of the private option.

Advance Arkansas Institute Report on the Private Option

An Advance Arkansas Institute (AAI) report by Dan Greenberg and Shane Stacks went into great detail on how the arguments in favor of the private option was flawed, and specifically how the private option would actually hurt hospitals financially. The findings resulted in some of the following conclusions:

  • “Hospitals have produced uncompensated care statistics of frightening magnitude in order to argue for private-option subsidies;
  • The private option will not address 90% of hospitals’ uncompensated care deficits;
  • Considered as a whole, Arkansas hospitals appear quite profitable;
  • Hospital’s difficulties with bad debt cannot be reduced through Medicaid expansion;
  • Using total uncompensated care as a justification for Medicaid expansion typically misrepresents hospitals’ undercompensated Medicaid problems by a factor of ten;
  • Medicaid services only constitute between 10% and 11% of uncompensated care;
  • Uncompensated care in Arkansas hospitals is a structural problem that is largely unrelated to Medicaid issues, and the private option will not cure it;
  • The charge to patients across all U.S. hospitals is, on average, nearly triple the cost of these services;
  • Each additional Medicaid client will increase the amount of uncompensated Medicaid expenses that hospitals must bear;
  • . . . Medicaid expansion, especially in Arkansas, is likely to force hospitals’ bad debt to increase;
  • Medicaid expansion will increase ER use around the country;
  • . . . The private option will, on net, expand hospital liabilities; in other words, the private option will make it harder for hospitals to pay their bills and treat their patients.”

A hospital executive mentioned in the report claims that hospitals need the private option because of expected federal cuts. Not only have those mentioned cuts not occurred, recent data released by the American Hospital Association seems to paint a different picture. This data sheds some insight on the growth of hospital expenses and in what areas. Full data can be found in Appendix C.

Hospital Financial Data

From 2006-2012, Arkansas hospitals saw a 6.13% decrease in their occupancies down to 54% average total occupancy. Admissions per bed also dropped by 6.5% down to 37.5. During this same time period gross patient revenue increased 55.3%, Payroll expense rose 45.49%, and the net revenue increased by 32.26%, with total expenses increasing 29.78%. The charge per adjusted inpatient a day rose 43% to $5,405.59. The total expense for this same measure rose just 19.5% and the payroll expense per inpatient day measure rose 34%.

This data indicates the following takeaways:

  • While occupancy was decreasing, revenue from patients was dramatically increasing.
  • While occupancy was decreasing, total expenses were significantly increasing, led by large increases in payroll expense.
  • The charge for an inpatient rose nearly twice as much as the expense for an inpatient, with payroll leading the expense increase. By 2012, the average expense of payroll as a percentage of the total expense had risen to 42.7%.

Non-Profit Hospitals’ Big Profits’

The AAI report also included research on 31 non-profit hospitals in Arkansas. This data showed a net-profit between those hospitals most recent financials totaling over $140 million. A breakdown of the hospitals can be found in Appendix A.

Hospital Construction

On top of the large net profits, estimated construction costs show further expansion of hospitals and medical centers around the state. According to the CMD group, there has been recent construction of Arkansas hospitals and medical centers at an estimated value total of over $450 million. A breakdown of the individual amounts per project and entity can be found in Appendix B.

Conclusion

Even during falling occupancies in hospitals, there are hundreds of millions in recent profits and new construction, as well as large increases in payroll. All of this contradicts the advocated need of the private option to save hospitals.

 

APPENDIX A: Arkansas Non-Profit Hospitals

Source: Dan Greenberg and Shane Stacks, Advance Arkansas Institute

Hospitals City 990 Total Revenue Tot. Expenses
Advanced Care Hospital of White County Searcy 2011 $6,639,837 $6,906,411
Arkansas Childrens Hospital Little Rock 2011 $507,372,238 $466,892,785
Arkansas Methodist Medical Center Paragould 2011 $69,869,072 $66,196,078
Baptist Extended Care–Little Rock Little Rock 2012 $12,142,480 $11,296,734
Baptist Health–Little Rock Little Rock 2011 $792,212,381 $762,708,685
Baptist Health Medical Center-Stuttgart Stuttgart 2011 $27,477,083 $26,154,997
Baxter County Regional Hospital Mt. Home 2011 $158,244,100 $156,455,473
CARTI Little Rock 2011 $264,496,900 $247,937,470
Chambers Memorial Hospital Danville 2011 $19,022,520 $18,238,944
Conway Regional Medical Center Conway 2011 $143,545,663 $136,458,854
Crittenden Regional Hospital West Memphis 2011 $73,021,032 $73,789,159
CrossRidge (St. Bernard’s) Wynne 2010 $14,274,989 $14,768,546
Five Rivers Medical Center Pocahontas 2012 $18,593,059 $17,673,058
Jefferson Hospital Association Pine Bluff 2011 $188,802,957 $180,201,335
Johnson County Regional Hospital Clarksville 2011 $35,571,138 $34,697,437
Mercy Hospital Berryville Berryville 2011 23210649 21421320
Mercy Hospital Fort Smith Fort Smith 2011 $207,287,662 $216,569,717
Mercy Hospital Hot Springs Hot Springs 2011 $192,386,699 $189,513,588
Mercy Hospital Paris Paris 2011 $7,115,960 $7,850,481
Mercy Hospital Waldron Waldron 2011 $9,225,953 $11,891,983
Methodist Behavioral Hospital Maumelle 2010 $16,859,129 $14,965,598
NEA Medical Center Jonesboro 2011 $98,670,243 $100,228,968
North Arkansas Regional Medical Center Harrison 2011 $79,528,716 $76,373,036
Saline County Medical Center Benton 2011 $94,757,409 $92,377,036
St Vincent Infirmary Medical Center Little Rock 2011 $406,666,078 $396,867,956
Saline Memorial Hospital Benton 2011 $94,757,409 $92,377,036
White County Medical Center Searcy 2011 $219,711,757 $200,256,571
Total $3,781,463,113 $3,641,069,256

 

APPENDIX B: Hospital Construction

Source: CMD Group: http://www.cmdgroup.com/building-types/hospital/arkansas/projects

Recent Construction Projects (over last 5 years)
Project/Hospital Estimated Value County City Address
Acute Care Rehab Hospital $       4,600,000.00 Faulkner Conway Off Robinson Ave.
Arkansas State Hospital $   20,500,000.00 Pulaski Little Rock Corner of Palm & Markham
Arkansas Surgical Hospital PH II $       9,000,000.00 Pulaski N. Little Rock Northshore Dr
Baptist Health Medical Center $       8,500,000.00 Cleburne Heber Springs 1800 Bypass Rd
Bella Rosa Center $       1,750,000.00 Pulaski 16101 Centrell Rd
Booneville Community Hospital $   11,647,000.00 Logan Booneville 880 W Main St
Bonneville Medical Clinic $         700,000.00 Logan Booneville Hwy 10
Centers for Youth & Families $       5,000,000.00 Drew Hwy 35E & Hwy 278
Central Arkansas Veterans Healthcare Sys $             50,000.00 Pulaski N. Little Rock 2200 Fort Roots Dr
Chenal Nursing & Rehab Center – Sitework $       3,500,000.00 Pulaski Little Rock Chenal Valley Dr & Rahling Rd
Chenal Nursing & Rehab Center – STRUCT $       3,500,000.00 Pulaski Little Rock Chenal Valley Dr & Rahling Rd
Conway Regional Medical Center $   26,000,000.00 Faulkner 2302 College Ave
Dallas County Health Unit $         495,000.00 Dallas Fordyce
Davita Dialysis Facility $         600,000.00 Poinsett 216 Hester Parker Dr
Delta Memorial Hospital $   11,000,000.00 Desha Dumas Hwy 65
Hospice Home Care Inpatient Facility $       5,000,000.00 Pulaski Little Rock 2200 South Bowman Rd
Huntsville Medical Clinic $       1,320,000.00 Madison Huntsville 900 Gaskill Ave
Jefferson Regional Med Center $         300,000.00 Jefferson
Kids First Clinic Bradley Warren Bradley St
Lincoln County Health Care Unit $         575,000.00 Lincoln US HWY 425
Magnolia Hospital Phase I $   30,000,000.00 Columbia Hospital Dr
Mansfield Youth Treatment Center $       3,726,020.00 Scott 36 Johnny Cake Rd
Marshall Medical Clinic $       1,099,000.00 Searcy Marshall
Mercy Health Hospital $   40,000,000.00 Benton Rogers 4650 W New Hope Rd
Mercy Health Hospital BP 5 $   50,000,000.00 Benton Rogers 4650 W New Hope Rd
Mercy Health Hospital BP 6 $   50,000,000.00 Benton Rogers 4650 W New Hope Rd
Mid-South Health Systems Facility $       1,185,000.00 Greene Paragould 28 Southpointe Dr
New Horizon Medical Center $   20,000,000.00 Boone Harrison
Rebsamen Medical Clinic $       1,100,000.00 Lonoke Cabot 2039 W Main St
Saline Memorial Emergency Department Saline Benton Medical Park Dr
Scenic Seven Doctors Clinic $         750,000.00 Yell Ola Hwy 7
Searcy Medical Center West Clinic $       1,350,000.00 White Searcy Off Country Club Rd
Sharp County Health Unit $         518,942.00 Sharp Ash Flat Hwy 167
Sleed Disorder Center Little Rock 800 S Marshall
South Central GI Clinic $         951,000.00 Garland 124 Sawtooth Oak St
Sparks Regional Medical CTR Foundations $   15,000,000.00 Sebastian Fort Smith 1311 S I St
St. Vincent Emergency Center $   40,000,000.00 Pulaski Little Rock 2 Staint Vincent Cir
UAMS Main Campus Education Building $   10,000,000.00 Pulaski Markham Rd
VA Medical Clinic $   58,000,000.00 Washington Fayetteville College Ave & National St
White County Medical Center $   10,000,000.00 White Searcy 3214 E Race Ave
White River Diagnostic Center Independence Batesville Driykiln Rd
WRMC Admin Service Building Washington Fayetteville 3215 N Northills Blvd
WRMC Senior Center $       2,500,000.00 Washington Fayetteville
TOTAL $ 450,216,962.00

Appendix A: Community Hospital Financial and Utilization Indicators, 2006-2012

Source: American Hospital Association, Hospital Statistics, 2014

INDICATOR 2006 2008 2010 2012 2006-2012
BEDS AVAILABLE 9,309 9,686 9,451 9,417 1.16%
ADMISSIONS 373,067 376,158 370,401 352,752 -5.45%
PATIENT DAYS 1,943,363 1,989,969 1,908,843 1,845,443 -5.04%
AVG. LENGTH OF STAY 5.21 5.29 5.15 5.23 0.43%
NON-EMERGENCY OP VISITS 3,818,276 3,671,422 3,645,562 3,743,252 -1.96%
OUTPATIENT VISITS 5,085,474 4,972,752 5,022,211 5,125,435 0.79%
NON-EMERGENCY AS A % OF TOTAL OP VISITS 75.1% 73.8% 72.6% 73.0% -2.73%
ADJUSTED PATIENT DAYS 3,174,935 3,332,945 3,376,921 3,448,184 8.61%
OCCUPANCY RATE 57.2% 56.3% 55.3% 53.7% -6.13%
INPATIENT SURGERIES 108,651 102,681 104,912 101,156 -6.90%
OUTPATIENT SURGERIES 144,619 136,565 155,784 174,095 20.38%
TOTAL SURGERIES 253,270 239,246 260,696 275,251 8.68%
OUTPATIENT AS % OF TOTAL SURGERIES 57.10% 57.08% 59.76% 63.25% 10.77%
TOTAL FTE EMPLOYEES 43,074 43,727 44,300 44,912 4.27%
FTEs PER ADJUSTED OCCUPIED BED 4.95 4.79 4.79 4.75 -4.00%
GROSS REVENUE, INPATIENT $7,346,539,305 $8,250,771,568 $9,211,448,957 $9,975,710,168 35.79%
GROSS REVENUE, OUTPATIENT $4,655,737,561 $5,568,220,057 $7,084,460,315 $8,663,764,850 86.09%
GROSS PATIENT REVENUE $12,002,276,866 $13,818,991,625 $16,295,909,272 $18,639,475,018 55.30%
BAD DEBTS $596,842,333 $694,032,836 $836,094,643 $986,382,655 65.27%
CHARITY $309,914,742 $359,231,835 $430,034,656 $532,039,579 71.67%
TOTAL DEDUCTIONS $7,572,665,742 $9,011,385,599 $11,007,346,255 $12,820,230,814 69.30%
MEDICARE, MEDICAID & OTHER PAYER WRITEOFFS $6,665,908,667 $7,958,120,928 $9,741,216,956 $11,301,808,580 69.55%
NET PATIENT REVENUE $4,429,611,124 $4,807,606,026 $5,288,563,017 $5,819,244,204 31.37%
OTHER OPERATING REVENUE $154,744,439 $169,341,834 $221,189,649 $256,162,838 65.54%
NONOPERATING   REVENUE $74,174,385 $31,674,701 $69,605,801 $85,908,563 15.82%
TOTAL NET REVENUE $4,658,529,948 $5,008,622,561 $5,579,358,467 $6,161,315,605 32.26%
PAYROLL EXPENSE $1,688,987,123 $1,956,438,729 $2,086,427,649 $2,457,349,493 45.49%
TOTAL EXPENSE $4,437,596,804 $4,921,858,438 $5,246,234,974 $5,759,240,612 29.78%
PATIENT REVENUE MARGIN -0.18% -2.38% 0.80% 1.03%
TOTAL MARGIN 4.74% 1.73% 5.97% 6.53%
CHARGE PER ADJUSTED INPATIENT DAY $3,780.32 $4,146.18 $4,825.67 $5,405.59 42.99%
RECEIPTS PER ADJUSTED INPATIENT DAY $1,395.18 $1,442.45 $1,566.09 $1,687.63 20.96%
EXPENSE PER ADJUSTED INPATIENT DAY $1,397.70 $1,476.73 $1,553.56 $1,670.22 19.50%
PAYROLL PER ADJUSTED INPATIENT DAY $531.98 $587.00 $617.85 $712.65 33.96%
PAYROLL AS % OF TOTAL EXPENSE 38.1% 39.8% 39.8% 42.7% 12.10%
BAD DEBT AND CHARITY AS % OF TOTAL CHARGE 7.6% 7.6% 7.8% 8.1% 7.83%
TOTAL DEDUCTIONS AS % OF TOTAL CHARGE 63.1% 65.2% 67.5% 68.8% 9.01%
OUTPT. REVENUE AS % TOTAL PATIENT REVENUE 38.8% 40.3% 43.5% 46.5% 19.83%
ADMISSIONS PER BED 40.1 38.8 39.2 37.5 -6.53%
PATIENT DAYS PER 1,000 POPULATION 691.3 697.0 656.0 625.8 -9.48%
ADMISSIONS PER 1,000 POPULATION 132.7 131.8 127.3 119.6 -9.87%
POPULATION (000’s) 2,811 2,855 2,910 2,949 4.91%