profit hospitals

Bad debt expense drops at for-profits for Q1 '08, Fitch says

Wed, 28 May 2008 06:59:58 -0400

Well, in a season of battered markets, here's some welcome good news. According to Fitch Ratings' For-Profit Hospital Industry Quarterly Diagnosis, bad debt levels actually fell among for-profit hospitals as a percentage of revenues, from 18.4 percent in the fourth quarter of 2007 to 17.7 percent in the first quarter of 2008. Things were bad last quarter, hitting many for-profit chains' bottom lines hard, and analysts had actually anticipated higher levels of unpaid medical bills this quarter.

Among the for-profit chains, Tenet had the lowest bad debt expense this quarter, with 12.1 percent of revenues, followed by LifePoint Hospitals, with 13.5 percent adjusted bad debt expense as a percentage of revenues. Tenet's numbers were improved by lower uninsured and charity care admissions.

In the recent report, Fitch analyst Lauren Coste said that relatively low unemployment rates were the main reason the for-profits' bad debt didn't climb. Also, she noted that hospitals have adopted more conservative accounting practices over the past couple of years, which have limited industry exposure to special bad debt charges. However, this interlude may not last. If job losses climb, or if states cut Medicaid funding, bad debt could begin to accelerate again, Coste noted.

To learn more about the report:
- read this InsideARM article

ALSO: Missouri hospitals wish they had it so good. According to the state's trade association, hospitals there saw uncompensated care grow 32 percent. Article

Related Articles:
In 2007, bad debt rising for hospitals
Bad debt savages HCA, LifePoint profits
Bad debt hits Health Management Assoc. earnings

AHA says IRS form 990, Schedule H need revision

Wed, 21 May 2008 06:59:58 -0400

The American Hospital Association has filed a letter with the IRS arguing that the agency could do more to accommodate small, cash-strapped institutions in its instructions for filling out Form 990 and the accompanying Schedule H aimed at not-for-profit hospitals. The AHA's input comes as part of the IRS comment period on the draft instructions, which will remain open until June 1st.

In its nine-page comment letter, the AHA raised a number of concerns over core definitions. For example, it cited worries over the agency's definition of "subsidized services," which would exclude physician clinics, skilled nursing and ancillary services. The AHA argued that these services can often be part of a non-profit's charitable mission.

The AHA also cited several definitions that it considered to be too broad, including "key employee" and "facility," which it argued would result in healthcare organizations having to engage in onerous amounts of reporting which don't provide value to the organization itself.

To get more information on the AHA's critique:
- read this Modern Healthcare article (reg. req.)
- read the AHA letter (.pdf)

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Proving community benefit by reducing sickness

S&P to monitor non-profit hospital tech spending

Wed, 14 May 2008 06:59:58 -0400

Over the next few years, credit rating firm Standard & Poor's plans to take a much closer look at the extent to which not-for-profit hospitals keep up with their peers in making technology investments while keeping finances otherwise in order. In fact, investment in advanced medical technology will be a key factor differentiating those with good and poor credit ratings, the firm said.

That being said, a strong technology investment program won't impress S&P all by its lonesome. The firm says it's going to look carefully at whether a hospital's medical technology investments made sense and what impact they had. Generally speaking, the firm warned, it still expects that given the pressures on the industry, hospital credit downgrades probably will outnumber upgrades in 2008, and possibly into 2009.

To learn more about S&P's plans:
- read this Modern Healthcare article (reg. req.)

Related Articles:
Moody's shows little enthusiasm for non-profit hospital finances
Health IT plans affect financial ratings
Ratings firms slam nonprofit hospital finances
Crisis may change tax-exempt bond rating system

Tenet sees $31 million loss for Q1

Wed, 07 May 2008 06:59:57 -0400

Dogged by expenses from lawsuits, Tenet Healthcare announced a $31 million first-quarter loss. Tenet reported a net loss of $31 million for the first quarter of this year, compared with a profit of $75 million for the same quarter last year when it enjoyed a $92 million tax gain. This quarter, Tenet faced litigation costs of $47 million pre-tax, which it set aside for wage and hour lawsuits and other employment matters. On the brighter side, its facilities saw a 1 percent increase in total admissions for this quarter compared to the first quarter of last year. Tenet also saw a drop in charity admissions due to an increased number of patients qualifying for Medicaid.

The unprofitable earnings report doesn't seem to have shocked Wall Street, which actually rewarded the company with a slight gain in its stock price the day the results were released. However, it is something of a counterweight to a recent favorable report from high-profile healthcare analyst Ken Weakly of Credit Suisse Securities, who ranked the stock as "outperform" and predicted a major improvement in its fortunes.

To learn more about Tenet's results:
- read this press release

Related Articles:
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Trend: Hospitals requiring upfront cash payments before treatment

Wed, 30 Apr 2008 06:59:56 -0400

Of late, a growing number of hospitals have been insisting on cash payments before they offer high-ticket services to non-emergency patients if they're not sure they'll get paid. While such practices may not generate the best PR, it's a matter of survival, hospitals say. Even though the current slate of health reform schemes insure all citizens, it seems unlikely to address the problem of collecting payments for costly procedures. For example, Massachusetts plans include many high-deductible options, which still leaves hospitals deep in the red if patients don't pay their share.

Hospitals are being sapped by care for growing numbers of uninsured patients, and say that unless they get tough on patients with some means, some of them simply won't survive. For example, both HCA and LifePoint hospitals saw profits drop substantially during the first quarter of this year, largely due to jumps in bad debt expense--including lower collections on patient accounts. Uncompensated care has been flattening hospitals nationwide, with the burden climbing 44 percent in 2006, to $31.2 billion, from $21.6 billion in 2000. Such debt is helping to push hospital margins well below the the 3 to 5 percent considered appropriate, and sometimes destroys them entirely.

That being said, collecting cash aggressively can rebound when not-for-profits are involved. For example, this week the Wall Street Journal brought some unflattering attention to the M.D. Anderson Cancer Center, which in late 2006 asked a leukemia patient for $105,000 up front because it wasn't satisfied with her insurance coverage. And with federal legislators like Sen. Chuck Grassley questioning not-for-profit hospitals' right to their tax exemptions, coming across as too money-driven has its perils.

To learn more about this trend:
- read this Kaiser Daily Health Policy Report item

Related Articles:
HMA adopts tougher collections strategy
In 2007, bad debt rising for hospitals
Bad debt savages HCA, LifePoint profits
HCA sees debt rising until patients get insured

Readers share thoughts on not-for-profit ratings

Wed, 09 Apr 2008 06:59:59 -0400

Last week in this space, I said that while I understand why Wall Street ratings firms focus on traditional performance metrics when they rate not-for-profit hospitals, I felt that such ratings did little to measure other key aspects of their mission.

My comments seemed to touch a nerve, as many of your wrote in to mull over, challenge and critique my conclusion. Here's some of your thoughts on the subject:

"We are all familiar with the adage: "No margin, no mission." It clearly reflects the need to operate not-for-profit facilities as a for-profit business to the degree that those actions don't conflict with the hospital's role to provide care and services to the community in which it resides. I agree with your suggestion that there should be a more standardized and accepted way for quantifying the non-profits' non-revenue producing services. And they need to do it before it is done to them." -- Healthcare consultant

Another reader wrote in to clarify why the financial metrics themselves shouldn't be relegated to the sidelines:

"What the current bond disclosures indicate for the what I term everyone else is flat to declining volumes, increases in bad debt and a deteriorating payor mix and a for many a lower net income year over year. From my perspective what should be of concern to both owners of the debt and of course to hospital operators is the rapid pace of deterioration and the scope of net income difference, 'swing' year over year." -- Healthcare analyst

And another reader pointed out that ratings from Moody's and its brethren have value outside of Wall Street, too:

"I think your perspective is valid in terms of value creation in the community. The Moody's ratings are critical however to inform all about the financial health of the value creators. I see benefit in the objective ratings as something that provides impetus and reasoning for internal hospital resource allocations, payer negotiations, fund raising, rate setting and mission clarification." -- Health system leader

Clearly, determining the proper metric for examining not-for-profit performance will continue to be a live issue, particularly as governments challenge their tax exemptions. I look forward to keeping up a dialog on this issue. In the mean time, thanks for your many thoughtful comments. - Anne

Crisis may change tax-exempt bond rating system

Wed, 09 Apr 2008 06:59:58 -0400

With public-finance markets in turmoil, and auction-rate bond interest rates spiking to unheard-of levels, officials are starting to pay attention to the way agencies evaluate bonds. Traditionally, there's been a big gulf between the tax-exempt, municipal bond market accessed by not-for-profit hospitals and the corporate bond market tapped by for-profits. The two have been rated and managed separately for a very long time. Now, some officials are suggesting that there should be a single global rating system that would spontaneously improve the ratings of most municipal bond insurers.

Generally speaking, it has been easier to get a high rating in the corporate bond market than it is in municipal bonds. To make things work on their side, not-for-profit issuers have been using bond insurers to get the AA rating they needed to attract investors. For a long time, that was OK, but when the subprime mess turned many financial markets upside down (when the bond insurers themselves started to go south), it wasn't any more. Through no fault of their own, hospital bond issue rates skyrocketed as bond insurers' own ratings fell. This led to calls for a new ratings system.

Now, the three major ratings agencies have begun to mull such changes. Moody's for example, plans to begin issuing globally-scaled ratings for tax-exempt bonds on an issuer's request. Fitch Ratings and Standard & Poor's, meanwhile, are hanging back a bit and considering their options. However, they're likely to face continuing pressure to make more adjustments, as the tax-exempt muni bond market is far from healed.

To learn more about this issue:
- read this Modern Healthcare piece (sub. req.)

Related Articles:
Auction-rate bond crisis bodes ill for non-profit providers. Bond report
CA hospitals allowed to restructure debt. Bond report
MA bond authorities make transactions easier. Bond report
IRS cracking down on post-issue bond proceed use. Report

Not-for-profit financial successes raise questions

Wed, 09 Apr 2008 06:59:57 -0400

According to a December 2006 Congressional Budget Office report, U.S. not-for-profit hospitals get $12.6 billion in tax exemptions and $32 billion in federal, state and local subsidies. That's a pretty sizable chunk of change, though perfectly acceptable if the hospitals use these moneys to fulfill their charitable mission. The problem is, critics increasingly are saying it's too good--and contending that some of the hospitals seem to be spending less on charity care than they're taking in in benefits. Of late, perhaps the most vocal and visible critic has been Sen. Chuck Grassley (R-IA), who has been on a mission for years to force not-for-profits to account for themselves. He may yet succeed in his campaign to force not-for-profits to pay at least 5 percent of annual patient operating expenses or revenues to charity care.

Of course, some not-for-profits are struggling terribly, particularly those in inner cities that take in a large number of uninsured patients. However, critics are drawn to some of the more successful not-for-profit hospitals, which are raking in revenue at a rate that beats even their for-profit rivals. According to data from the American Hospital Directory, 77 percent of the 2,033 not-for-profit hospitals in the U.S. come out ahead financially, as opposed to 61 percent of for-profits. Meanwhile, according to data from the AHD, the combined net income of the 50 largest not-for-profit hospitals in the U.S. went up by a factor of 8 from 2001 to 2006, hitting $4.27 billion.

Certainly, as such hospitals begin to roll out their first Schedule Hs for Form 990, critics will at least have a better idea of where the money is going, and that will hopefully defuse some bad feelings. But in the mean time, it seems not-for-profit hospitals will have a lot of explaining to do if they're coming up with an excess income regularly. Better that than more regulations, right?

To learn more about this trend:
- read this Kaiser Daily Health Policy Report item

Related Articles:
Feds to crank up not-for-profit charity demands. Charity care report
AHA makes headway on community benefit reporting. Community benefit report
IRS to investigate nonprofit hospitals. IRS report
VHA: Charity policy must come from the top. VHA report

SPOTLIGHT: For-profits see rising uncompensated care numbers

Wed, 09 Apr 2008 06:59:52 -0400

According to a new analysis, for-profit hospitals are struggling to deal with uncompensated care, too. While the for-profit hospital sector has cut the percentage of uncompensated care it delivers from 18.4 percent of adjusted net revenue in the third quarter of 2007 to 17.8 percent for the fourth quarter, that fourth quarter number is 1.2 percent higher than the same quarter in 2006. Financial article