2017 was a tough year for some Arkansas hospitals, and the situation could be getting worse.
Arkansas Business’ annual checkup of hospitals shows that 38 out of the 91 institutions on this year’s list of the state’s largest hospitals and medical centers — 42 percent — reported losing money. That compares with 38 percent on the list that ran in 2013, just before the main features of the Affordable Care Act took effect.
The act required people to have health insurance and provided financial assistance for those who couldn’t afford it. During President Donald Trump’s administration, however, Congress repealed the tax penalty that required people to have insurance. That repeal goes into effect in 2019.
Moody’s Investors Service recently reported an alarming trend for hospitals across the country: The growth of expenses is exceeding the growth of revenue.
Nonprofit and public “hospitals continue on an unsustainable path as the median annual expense growth rate continues to exceed the median annual revenue growth rate, driving the second year of significant margin contraction,” according to an August report. “Lagging revenue growth will remain the largest strain on profitability in 2018 and 2019 as many of the operating pressures seen in 2017 continue to accelerate.”
The hardest hit hospitals in Arkansas were those in rural areas. The 25-bed Ozark Community Hospital of Gravette reported a loss of $35.7 million for 2017, which followed a $14.1 million loss in 2016. Its administrator, Paul Taylor, didn’t return a call from Arkansas Business.
Fourteen of the 15 smallest hospitals in Arkansas ranked by net patient revenue reported losing money, according to the most recent data available to Arkansas Business.
The larger hospitals, however, fared better. Fourteen of the 15 largest hospitals in Arkansas reported net income. And at 11 of those hospitals, the net income was more than $10 million. But even that’s not cause for celebration, as some of those large hospitals saw declines in operating income between 2016 and 2017.
“There’s a lot of pain and a lot of uncertainty” in the health care industry, said CHI St. Vincent CEO Chad Aduddell.
CHI’s flagship hospital in Arkansas, CHI St. Vincent Infirmary, reported a loss of $18.3 million for its fiscal year that ended June 30, 2017.
Labor and supply costs, which account for about 70 percent of a hospital’s expenses, are climbing, while patient revenue is flat or declining, Aduddell said. “Your labor costs continue to rise and then supplies are rising at an even faster rate. … We’re seeing that here locally as well as across the country.”
Baptist Health Medical Center-Little Rock reported its net patient revenue increased just 1.1 percent to $493.4 million in 2017. While Baptist’s Little Rock hospital generated a net income of $39 million for 2017, which was one of the highest in the state, that amount doesn’t present the entire financial picture. Most of the 814-bed hospital’s net income, $27.3 million, came from investment gains “due to favorable market results,” Brent Beaulieu, vice president of financial services at Baptist Health, said in an email response to questions.
The income from operating the hospital was $11.7 million in 2017, a decrease of 34.3 percent from the previous year.
“While we did receive some [revenue] increases from government and payers, the increases were relatively small and not enough to cover the impact of basic inflation on core expenses,” he said.
Washington Regional Medical Center in Fayetteville reported net patient revenue of $294.4 million and a net income of $50.3 million for 2017. But its operating income fell nearly in half to $10.9 million in 2017 from the previous year, Natalie Ladd Hardin, a spokeswoman for Washington Regional, said in response to questions from Arkansas Business.
Hardin said that in 2017 the hospital added employees because it had expanded by 60 beds.
Arkansas Business ranks hospitals and medical centers by net patient revenue based on information provided by the hospitals or annual Medicare cost reports, most of which are unaudited.
Bo Ryall, president and CEO of the Arkansas Hospital Association, said he didn’t know of any hospitals that are close to closing in Arkansas. But, he said, lower reimbursements for procedures from Medicare, Medicaid and commercial insurance payers “are putting enormous pressure on small, rural hospitals to survive,” Ryall said. “It’s very tough to keep the doors open these days.”
Across the country there’s been a 2-3 percent decline in patients using hospitals for the higher-paying inpatient procedures, said CHI’s Aduddell.
The Largest Hospitals & Medical Centers in Arkansas, ranked by revenue. Available in either PDF or spreadsheet formats.
As an example, a decade ago a knee replacement procedure meant a three- or four-day stay in the hospital, he said. “In the last five years, we’ve gotten it down to a little over a 24-hour length of stay, which was industry leading,” he said.
Starting on Jan. 1, Medicare began paying for the surgery as an outpatient procedure, which resulted in about a 30 percent drop in payment to hospitals, Aduddell said.
“Now my expenses didn’t change, so the cost of the implant, that remains the same,” he said. “The cost of providers that are involved, that’s all pretty similar, but what we’re being paid went down by at least a third.”
Aduddell said hospitals are constantly looking for ways to cut expenses. CHI St. Vincent benefits because it can purchase supplies through the buying group of Catholic Health Initiatives of Englewood, Colorado, which is in the process of merging with Dignity Health of San Francisco.
“We’re in a position to manage that supply spend better than anyone else,” he said.
Hardin said Washington Regional is part of a buying group that includes the Mayo Clinic, Baptist Health and the University of Arkansas for Medical Sciences.
Arkansas Works Helps
The financial statements for the hospitals would be worse if it weren’t for Arkansas Works, the state’s expanded Medicaid program that uses federal Affordable Care Act dollars.
Jefferson Regional Medical Center in Pine Bluff received an annual benefit of $7 million to $8 million in the fiscal year that ended June 30, 2017, according to an independent auditor’s report by BKD. JRMC reported net income of $5.2 million for its fiscal year that on June 30 of this year.
Washington Regional Medical Center’s Hardin said the ACA and Arkansas Works “have served to improve access to health care and have mitigated, to some degree, the compensated care previously provided.”
Aduddell said CHI’s uninsured population is about half of what it was before Arkansas Works took effect. It had been as low as 3 percent, but it’s slightly higher now.
Aduddell said the hospital system is investing in services such as the Arkansas Health Network, which was formed six years ago and which is designed to keep people well and out of the hospital.
In addition, it is investing in high-end procedures such as neurosurgery, which is one of the hospital’s most profitable surgeries. CHI St. Vincent North in Sherwood has a $30 million renovation and construction project underway. The project will move CHI’s Arkansas Neuroscience Institute from Little Rock to St. Vincent North, which will create a destination for neuroscience surgery, and will add an education and research building. The hospital renovation project is expected to be completed in late fall while the two-story education building is expected to be completed in early spring.
“On one hand, I’ve got these services that pay for the health system to continue to meet its mission, and on the other hand, I’m investing in services to try to keep people well and out of the hospital,” Aduddell said.
He said trying to keeping people healthy is the trend. “That’s where health care has to go,” he said. “This other model isn’t sustainable.”