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OC’s hospitals post overall revenue and earnings gains

Orange County hospitals are as healthy as ever.

According to this week’s Business Journal list, the 35 largest hospitals here collectively grew net patient revenue and net income from operations in the past year. They would have done even better if not for a restructuring-related loss at No. 10 Anaheim Memorial Medical Center.

The hospitals saw patient revenue rise 8% to $2.6 billion, while net income rose 20% to $130 million. Minus Anaheim Memorial, net income at the 34 other hospitals was up an even brisker 25% to $133.5 million.

The relatively strong showing comes despite perennial hand wringing by hospital officials about the financial impact of managed care contracts, caps on government reimbursements and rising expenses.

Despite those factors, OC hospitals are boosting revenue and are operating more efficiently. Next year, the hospitals could post even better net income performance as a result of renegotiated contracts with managed care and other health insurers.

Nineteen of the 35 hospitals reported operating gains, while 13 reported operating losses. Of those reporting gains, 18 reported rises in their net income, while 15 reported declines. Four went from losses a year ago to gains this time around.

Two facilities declined to disclose data and another didn’t report operating income data. The net patient revenue figures for No. 11 Kaiser Foundation Hospital-Anaheim and No. 17 Orange Coast Memorial Medical Center are Business Journal estimates. The hospitals are ranked by 12-month net patient revenue with various reporting periods, with most ending in late 2000 or year-end.

Data for the list usually comes from California’s Office of Statewide Health Planning and Development, with some revisions by individual facilities. Because of software troubles at the agency, this year’s list relies on a combination of state and hospital data.

The $3.4 million loss at Anaheim Memorial,which saw an operating profit of $1 million a year ago,was tied to last fall’s closing of nearby Martin Luther Hospital and the integration of its operations into Anaheim Memorial, according to Chief Executive Melinda Beswick.

The loss was “an aberration,” Beswick said, noting that Anaheim Memorial’s posted positive months since December. Patient revenue at Anaheim Memorial was up 42% to $102 million.

Long Beach-based Memorial Health Services, Anaheim Memorial’s owner, acquired Martin Luther Hospital in 1999.

“We wanted to make sure that a not-for-profit community hospital could survive in North Orange County. It was not possible to keep two campuses,” said Beswick, who became Anaheim Memorial’s chief executive about eight months ago.

Local hospital operators are wrestling with several issues, including negotiating with health plans and seismic retrofitting, said Ed Lehman, a consultant in the Southern California office of the Watson Wyatt Worldwide consulting firm.

On the negotiating side, Lehman said hospitals are “trying to balance their business needs with public perception,” noting that some contract talks have become both public and acrimonious.

As for individual hospitals, St. Joseph Hospital-Orange maintained the No. 1 position that it captured last year from Hoag Memorial Hospital Presbyterian in Newport Beach. Hoag’s been ranked first or second on the Business Journal’s list since 1993.

Operating income figures showed mixed signals for St. Joseph Health System’s three local hospitals in the past year. St. Joseph-Orange reported a 51% jump in net income from operations to $9.6 million. Mission Viejo’s Mission Hospital Regional Medical Center, No. 6 on this year’s list, reported a 72% hike in net operating income to $17.3 million.

But No. 4 St. Jude Medical Center in Fullerton reported sharply decreased net income from operations,dropping to $8.5 million from the $29.7 million reported in 1999. St. Joseph officials weren’t available for comment on the drop.

In late 2000, St. Joseph Health System, citing heavy losses, moved to free itself from a majority of its managed care contracts. St. Joseph later signed pacts with five “partner health plans,” but will lose one of those when Health Net ends its business relationship with the system next year.

St. Joseph reported a net patient revenue gain of 8% in the past year, to $300.5 million. St. Jude’s net patient revenue gain was 4%, to $195.7 million, while Mission Hospital’s revenue gain was 5%, to $135.3 million.

No. 2 Hoag’s net patient revenue jumped 13% in the period, climbing to $291.9 million. When it came to net income from operations, Hoag reported a 106% increase to $30.4 million.

Hoag’s operating income gain primarily came from a favorable settlement of prior disputes between the hospital and Medicare and MediCal programs, said Peter Foulke, Hoag’s chief financial officer, through a spokeswoman.

Foulke also credited the jump to getting an early start in its negotiations with insurers and a $1 million rebate from VHA, a cooperative of community-owned hospital systems.

Besides Hoag and the St. Joseph facilities, the top 10 OC hospitals, in terms of net patient revenue, included: No. 3 UCI Medical Center in Orange; No. 5 Fountain Valley Regional Hospital and Medical Center; Western Medical Center-Santa Ana, No. 7; No. 8 Children’s Hospital of Orange County; and No. 9 Saddleback Memorial Medical Center in Laguna Hills.

CHOC’s Orange main hospital reported an operating gain of $6.9 million during the list period, after several years of losses. Chief Executive Kimberly Chavalas Cripe said her hospital’s improved financial performance primarily came from growth because “there wasn’t enough fat” in CHOC’s operation to solely rely on cost cutting.

Among other things, CHOC had to renegotiate contracts with its managed care providers, Cripe said earlier this summer.

“Our census went up 47% in the past 3 1/2 years. That gave us additional revenue,” Cripe said, mentioning efforts to invest in centers of excellence for specialized conditions, getting better reimbursement rates for contracts covering those centers and strengthening its relationships with area pediatricians.

In other hospital performance indicators, the 35 facilities on the list showed a slight dip in total licensed beds to 6,731 from 6,770, due to the Martin Luther closure.

Hospital employment was up 6% to 32,612 people from 30,823 the year before. CHOC at Mission was the hospital with the largest percentage hike among employment numbers, going from 71 employees in 1999 to 106 this year. n

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