Tax Helps Arkansas Hospitals Stop Bleeding

by Mark Friedman  on Monday, Oct. 3, 2011 12:00 am  

This year, Arkansas Business' list of largest hospitals and medical centers shows a sharp change from previous hospital lists: Most made money in 2010.

(Click here to see a PDF list of the state's hospitals ranked by revenue. A spreadsheet version is available for purchase.)

On the list, 64 facilities out of 98 had a net profit if the hospital's fiscal year ended in 2010 or later. Just two years ago, 52 hospitals out of 94, or 55 percent, reported losses.

The swing to profitability can be attributed to the Medicaid provider tax for hospitals, which went into effect three years ago, said Paul Cunningham, the senior vice president of the Arkansas Hospital Association.

That provider tax has pumped about $140 million into Arkansas hospitals. It is distributed to hospitals based on factors such as each hospital's Medicaid load and patient volume.

Even with the extra funds from the Medicaid provider tax, however, some hospitals fell short, Cunningham said. The total reimbursement payments to hospitals cover only between 85 and 90 percent of a hospital's cost, he said.

Arkansas hospitals are expected to lose about $1.4 billion in reimbursement during the next decade as a result of the Affordable Care Act of 2010, Cunningham said.

It remains unclear, though, if the hospitals will recoup these losses through other revenue streams, such as insurance carriers since people will be required to have insurance by 2014.

Hospital administrators fear more cuts are looming.

On Sept. 19, President Barack Obama released his plan to reduce the nation's deficit by $3 trillion during the next decade. Part of his proposal called for a $320 billion reduction in federal spending on Medicare and Medicaid.

It was unclear how those cuts, if approved by Congress, will affect Arkansas hospitals, Cunningham said.

One of the biggest turnarounds on this year's list is Sparks Regional Medical Center in Fort Smith. It posted a $23.6 million loss for its fiscal year that ended in June 30, 2009, to a net income of $34.9 million for its fiscal year that ended Dec. 31.

Donna Bragg, a spokeswoman for Sparks, said in an email to Arkansas Business that the hospital doesn't disclose financial information. But she said the numbers might have something to do with Health Management Associates Inc. of Naples, Fla., buying Sparks at the end of 2009. (That purchase also meant a change in the hospital's fiscal calendar.)

To create the list, Arkansas Business uses a hospital's most recent annual Medicare cost reports, which are mostly unaudited and which are on file with the Centers for Medicare & Medicaid Services. The hospitals are then ranked by total patient revenue.

Also on this year's list, Magnolia Regional Medical Center posted an eye-popping net income of $37.75 million on patient revenue of $45.7 million for its fiscal year that ended Sept. 30, 2010. The prior year, it had patient revenue of $46.4 million and a loss of $2 million. Its administrator, Margaret West, didn't return calls seeking an explanation for the improved numbers. 

With an income of $15.8 million, White County Medical Center in Searcy may have seen its highest income in its history, the hospital's president and CEO, Ray Montgomery, said. He said the robust income was a result of cutting expenses to prepare for lower reimbursements in the future.

Starting in 2014 and continuing through 2019, White County expects to see about $19 million less in revenue from reimbursements, Montgomery said. Montgomery said the hospital was projecting a loss of reimbursements of between $5 million and $7 million annually through 2019.

He said the hospital had saved about $1.5 million annually by finding the best deals on supplies, on everything from Band-Aids to paper towels.

In addition, about 30 to 40 positions have been eliminated through attrition in nonclinical areas such as billing, Montgomery said.

"We have begun to position the hospital for the [upcoming] years," he said. "We know that we have to get leaner."

No. 1s
Once again, the No. 1 hospital for total patient revenue is Baptist Health Medical Center-Little Rock. Its revenue increased 3.7 percent to $1.4 billion in 2010 compared with its revenue in 2009, when it also finished in the top spot.

Arkansas Children's Hospital in Little Rock again had the highest net income with $43 million for its fiscal year that ended June 30, 2010. It reported a net income of $35.6 million the previous year.



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