Ohio hospitals had healthy profit margins before pandemic hit

by on

Before COVID-19 strained hospital finances, health systems across Ohio enjoyed stronger profitability and pursued growth through acquisition and construction in 2019, according to a new report analyzing Ohio’s healthcare insurance and provider markets.

The Ohio Health Market Review 2020 offers a snapshot of where hospitals in the state stood before the pandemic, as well as a glimpse into how health insurers fared in the first half of 2020. Hospital profitability increased last year in the Cleveland/Akron, Columbus and Cincinnati/Dayton areas, according to the review, which is the 15th report from Allan Baumgarten, a Minnesota-based independent healthcare analyst who publishes reports on the markets in Ohio and a few other states.

That starting point — along with relief from the CARES Act and other supports — has helped blunt the impact of the pandemic, Baumgarten said.

“Bottom line, I think some of them might have some losses for the 12-month period, but it’s not been the disaster that it might have looked like a few months ago,” said Baumgarten, who conducts market research for a range of clients.

The combined net income of hospitals in the Cleveland/Akron region last year was $1.94 billion, or 12.7% of net patient revenues, according to the report, which uses data from annual Medicare costs reports. This is more than triple the year prior for Cleveland and Akron, which Baumgarten attributes in part to a poorer financial performance in 2018. Revenue from non-hospital locations within a system (such as urgent care centers, family health centers or other outpatient settings) are not included in the data.

“Net income of that amount really gave them the ability to sock it away in their reserves as a cushion against these kinds of downturns both in revenues and also the increased expenses that they’ve incurred in responding to COVID,” Baumgarten said.

Hospital profitability in the Columbus area increased by 31% last year, posting a combined net income of almost $1.6 billion. In the Cincinnati/Dayton/Northern Kentucky region, hospitals’ net incomes grew substantially, almost doubling to $1.3 billion in 2019.

Still, the pandemic has taken a significant toll on hospital finances. Between March 9, when the public health emergency was declared, and May 1, when some postponed elective procedures were allowed to restart, Ohio hospitals suffered a combined hit of $2.38 billion — including lost revenues and unanticipated emergency expenses — and have since continued to lose an estimated $6 million in revenue each day, according to the Ohio Hospital Association. OHA estimates that the financial impact on Ohio hospitals to date is $4.28 billion.

CARES Act funding from the provider relief fund, delayed cuts to Medicaid disproportionate share funding and dollars from the state’s portion of CARES Act funds have helped to cushion that blow, but hospitals are still left with a $1.84 billion funding gap, according to calculations from OHA. That could continue to grow without additional financial relief, especially as COVID-19 cases are rising at an unprecedented clip.

“Even with the CARES Act funding, there are still some hospitals out there that are struggling,” said OHA spokesman John Palmer.

Wage and labor costs have been a leading force in added costs for hospitals as they experience a surge in COVID-19 patients, requiring overtime and a full capacity staffing response, he said. Plus the costs of personal protective equipment (PPE), medical supplies and equipment also have driven up hospital expenses.

Meanwhile, in the first half of 2020, Ohio’s health insurers saw improved profits alongside a sharp drop in claims, the result of postponed nonessential procedures and consumers delaying care out of fear, Baumgarten said. Five HMOs contracting with the state for Medicaid reported a net income of $334 million in the first half of 2020, compared with a loss of $48 million during the like period in 2019, according to the report.

Some insurers are looking at premium discounts or other ways to hold onto individual customers and in particular, employer groups that may be thinking of dropping their coverage, Baumgarten said. The drop in claims also could mean insurers will have to issue rebates if their spending on claims dipped below a threshold established as a percentage of their premium costs.

In addition to the profitability hospitals saw before the pandemic, the trend of consolidation also generally put many in a good position at the start of 2019 to be able to weather the financial hit they took throughout this year, Baumgarten said. Large health systems in the region, state and country have for years been acquiring community and independent hospitals, moves that offered economies of scale for purchasing power, negotiating strength with insurers, administrative efficiencies and other benefits that help them save.

“I would say that the consolidation plus the years of generally strong profits have put them in, at the beginning of 2020, I think they were in a very strong position,” he said.

The sustainability of continued financial losses at hospitals is “on the forefront of almost every hospital administrator and leadership, as well as their boards of governance,” Palmer said.

Even beyond the pandemic, hospitals face a lot of uncertainty with the Affordable Care Act case in front of the Supreme Court, a new administration in the White House and a new state budget. All of the dynamics that could be changing going forward are “very volatile,” Palmer said.

“It is going to take some time to get reoriented with everything and establish where hospitals need to be going,” he said, “because the impact of this pandemic is going to be felt for a long time.”

Ohio hospitals had healthy profit margins before pandemic hit” originally appeared on Crain’s Cleveland Business.

Before COVID-19 strained hospital finances, health systems across Ohio enjoyed stronger profitability and pursued growth through acquisition and construction in 2019, according to a new report analyzing Ohio’s healthcare insurance and provider markets.

The Ohio Health Market Review 2020 offers a snapshot of where hospitals in the state stood before the pandemic, as well as a glimpse into how health insurers fared in the first half of 2020. Hospital profitability increased last year in the Cleveland/Akron, Columbus and Cincinnati/Dayton areas, according to the review, which is the 15th report from Allan Baumgarten, a Minnesota-based independent healthcare analyst who publishes reports on the markets in Ohio and a few other states.

That starting point — along with relief from the CARES Act and other supports — has helped blunt the impact of the pandemic, Baumgarten said.

“Bottom line, I think some of them might have some losses for the 12-month period, but it’s not been the disaster that it might have looked like a few months ago,” said Baumgarten, who conducts market research for a range of clients.

The combined net income of hospitals in the Cleveland/Akron region last year was $1.94 billion, or 12.7% of net patient revenues, according to the report, which uses data from annual Medicare costs reports. This is more than triple the year prior for Cleveland and Akron, which Baumgarten attributes in part to a poorer financial performance in 2018. Revenue from non-hospital locations within a system (such as urgent care centers, family health centers or other outpatient settings) are not included in the data.

“Net income of that amount really gave them the ability to sock it away in their reserves as a cushion against these kinds of downturns both in revenues and also the increased expenses that they’ve incurred in responding to COVID,” Baumgarten said.

Hospital profitability in the Columbus area increased by 31% last year, posting a combined net income of almost $1.6 billion. In the Cincinnati/Dayton/Northern Kentucky region, hospitals’ net incomes grew substantially, almost doubling to $1.3 billion in 2019.

Still, the pandemic has taken a significant toll on hospital finances. Between March 9, when the public health emergency was declared, and May 1, when some postponed elective procedures were allowed to restart, Ohio hospitals suffered a combined hit of $2.38 billion — including lost revenues and unanticipated emergency expenses — and have since continued to lose an estimated $6 million in revenue each day, according to the Ohio Hospital Association. OHA estimates that the financial impact on Ohio hospitals to date is $4.28 billion.

CARES Act funding from the provider relief fund, delayed cuts to Medicaid disproportionate share funding and dollars from the state’s portion of CARES Act funds have helped to cushion that blow, but hospitals are still left with a $1.84 billion funding gap, according to calculations from OHA. That could continue to grow without additional financial relief, especially as COVID-19 cases are rising at an unprecedented clip.

“Even with the CARES Act funding, there are still some hospitals out there that are struggling,” said OHA spokesman John Palmer.

Wage and labor costs have been a leading force in added costs for hospitals as they experience a surge in COVID-19 patients, requiring overtime and a full capacity staffing response, he said. Plus the costs of personal protective equipment (PPE), medical supplies and equipment also have driven up hospital expenses.

Meanwhile, in the first half of 2020, Ohio’s health insurers saw improved profits alongside a sharp drop in claims, the result of postponed nonessential procedures and consumers delaying care out of fear, Baumgarten said. Five HMOs contracting with the state for Medicaid reported a net income of $334 million in the first half of 2020, compared with a loss of $48 million during the like period in 2019, according to the report.

Some insurers are looking at premium discounts or other ways to hold onto individual customers and in particular, employer groups that may be thinking of dropping their coverage, Baumgarten said. The drop in claims also could mean insurers will have to issue rebates if their spending on claims dipped below a threshold established as a percentage of their premium costs.

In addition to the profitability hospitals saw before the pandemic, the trend of consolidation also generally put many in a good position at the start of 2019 to be able to weather the financial hit they took throughout this year, Baumgarten said. Large health systems in the region, state and country have for years been acquiring community and independent hospitals, moves that offered economies of scale for purchasing power, negotiating strength with insurers, administrative efficiencies and other benefits that help them save.

“I would say that the consolidation plus the years of generally strong profits have put them in, at the beginning of 2020, I think they were in a very strong position,” he said.

The sustainability of continued financial losses at hospitals is “on the forefront of almost every hospital administrator and leadership, as well as their boards of governance,” Palmer said.

Even beyond the pandemic, hospitals face a lot of uncertainty with the Affordable Care Act case in front of the Supreme Court, a new administration in the White House and a new state budget. All of the dynamics that could be changing going forward are “very volatile,” Palmer said.

“It is going to take some time to get reoriented with everything and establish where hospitals need to be going,” he said, “because the impact of this pandemic is going to be felt for a long time.”

“Ohio hospitals had healthy profit margins before pandemic hit” originally appeared on Crain’s Cleveland Business.

VA:F [1.9.7_1111]
Rating: 0.0/10 (0 votes cast)
VA:F [1.9.7_1111]
Rating: 0 (from 0 votes)

Leave a Comment

Previous post:

Next post: