It’s been a good run for Orange County’s largest hospitals.
The top 10 hospitals in the county saw patient revenue surge 66% from 2000’s $1.75 billion to nearly $3 billion in the past year.
Profits before taxes grew even faster, more than doubling to $366 million, albeit with a dip in 2002.
The numbers show that despite some real challenges and well-publicized woes at hospitals, they’ve been a predictable, growing source of revenue and profits.
The largest local hospitals outpaced the top publicly traded hospital operators, which grew sales an average of 20% in the past five years. The public operators grew profits an average 50% during that time.
The analysis of local facilities comes from looking at five years of the Business Journal’s annual list of the largest hospitals here. The data for our list comes from California’s Office of Statewide Health Planning and Development.
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Agwunobi: “Orange County hospitals have strong financial positions” |
There are some caveats.
The hospitals making up the county’s top 10 in OC have fluctuated from 2000 to 2005, with some dropping out of the top tier and others making it in.
Only a handful consistently ranked in the top 10 for the five years. They include UCI Medical Center in Orange, Hoag Memorial Hospital Presbyterian in Newport Beach and Orange-based St. Joseph Health System’s three hospitals here.
On the Business Journal’s hospitals list in February, UCI Medical Center, Hoag and St. Joseph’s hospitals made up half of the revenue of the largest hospitals here and nearly all,96%,of the profits.
“There’s a range of performance in the hospital industry,” said Andrew Agwunobi, St. Joseph’s chief operating officer. “As you can see, our three Orange County hospitals have strong financial positions.”
Officials Still Guarded
The numbers contradict a constant refrain from hospital industry officials. They’re quicker to talk about how hard it is for them to make ends meet, thanks to a shortage of nurses, stingy health plan operators, caring for uninsured patients and costly state mandates.
Tim Smith, administrative officer of UCI Medical Center, isn’t ready to dismiss the sky-is-falling talk.
“It’s a little better in Orange County than it is in the rest of California, but I still think there are a number of hospitals in Orange County that are losing money,” Smith said.
On the Business Journal’s February list, 12 of 32 hospitals reported losing money for the 12 months through September. Among the profitable ones, several reported lower earnings than a year before.
UCI Medical Center has an operating profit margin of about 9%, “which in healthcare is healthy,” Smith said.
The percentage excludes money from the state to care for uninsured patents and funding for the School of Medicine at the University of California, Irvine, which runs the hospital.
Raising Money
But funding from other sources,either governments or donations,is part of the story at local hospitals. They’ve proven adept at lobbying for more funding and appealing to donors to support their work.
Hoag set out to raise $50 million for its recently completed Sue and Bill Gross Women’s Pavilion. It ended up raising more than $70 million.
Hospitals also have been willing to take on health maintenance organization plans,and even break off contracts with them,in a bid to up reimbursement for their services.
In 2000, not-for-profit Catholic operator St. Joseph ended work with Cypress-based PacifiCare Health Systems Inc., now part of Minnesota’s UnitedHealth Group Inc., after the HMO’s officials said they weren’t willing to give the hospital the rate increases it sought.
The companies eventually made up with St. Joseph getting more for its services.
Rising healthcare costs and caps on payments from insurers crimped pretax profits at the largest hospitals here in 2002. It fell 9% from 2001 to $154 million that year.
Hospitals have turned to outpatient surgery centers and other services to boost profits. That’s helped Orange Coast Memorial Medical Center, a midsize hospital in Fountain Valley, according to Chief Executive Marcia Manker.
It’s partly a game played with insurers, she said.
“You get paid more on the outpatient side, so you’re competing with your own physicians for the same book of business, whereas if the payers would equalize it and make it more sound on the inpatient side, we wouldn’t have everybody fighting for the same outpatient book of business,” Manker said.
Orange Coast Memorial, one of three local hospitals run by Long Beach-based Memorial Health Services Inc., ranked No. 11 in hospital pretax net income for 2005 at $5.9 million.
“If you take a snapshot of our profitability now, it looks fine,” Manker said. “But we’re looking out (at) what we need to do to keep investing in our hospitals and equipment, and it’s onerous.”
Orange Coast gets modest increases in payments from insurers each year, Manker said. But the hospital’s profits “are nothing compared to the health plans,” she said.
Earthquake Mandate
The big challenge for hospitals: meeting California’s earthquake law.
Legislation requires hospitals to upgrade their facilities to guarantee that they can withstand an earthquake by 2013 and to be able to keep operating after one by 2030.
Hospital operators call that an “unfunded mandate.”
UCI Medical Center is spending $375 million on a new hospital to replace its aging main facility, which was built in the 1960s.
With the earthquake requirement, California’s hospitals face greater challenges than those in other states, said St. Joseph’s Agwunobi, who previously headed Grady Health System, an Atlanta-based hospital and clinic operator.
“If you think about the seismic mandate, for example, we are going to spend, as a system, billions of dollars,” he said. “We’ll probably spend at least $1 billion by 2013 just complying with the seismic mandate. If you look across the nation, there isn’t anywhere that there’s that type of pressure on the cash flow from hospitals.”
St. Joseph’s stronger hospitals, including St. Joseph Hospital-Orange, St. Jude Medical Center in Fullerton and Mission Hospital in Mission Viejo, offset weaker ones among the 14 it operates, Agwunobi said.
“We have hospitals that are losing money every single month and are struggling,” he said. “One of the strengths of a system is that you are able to have hospitals that are strong and they help us to make sure that we are able to provide for the communities where the hospitals are not so strong.”
