OC’s 35 Largest Increase Profits 1%; St. Joseph Knocks Hoag From No. 1 Spot
Orange County’s hospital executives often say reimbursement from managed care and government programs don’t keep up with expenses and squeeze them financially. But the 35 largest OC hospitals still managed to maintain their total profit last year, according to the Business Journal’s annual list.
The 35 hospitals on this year’s list,ranked by net patient revenue,reported an aggregate operating profit increase of 1% to $103 million in 1999, compared with the same facilities’ 1998 total aggregate operating profit of $102 million. Twenty of the 35 hospitals reported operating profits.
But the 1999 profit total slipped 5% from the $108.7 million 1998 total at the 35 hospitals on last year’s list.
Net patient revenue at this year’s hospitals, on the other hand, rose 6% to $2.43 billion from $2.28 billion in 1998. Compared with the hospitals on last year’s list, net patient revenue rose 3%. Data comes from the Office of Statewide Health Planning and Development, with some revisions by individual facilities.
“There are a lot of pressures on the cost side,technology, compliance and regulation,” said Robert Langston, a principal in KPMG’s Costa Mesa office. “There is also continuing medical inflation. It’s higher than revenue increases.”
New medical technologies and more expensive drugs are causing medical costs to increase, Langston said, adding that compliance with various regulations are making hospital officials spend “fabulous amounts of money.”
Not every Orange County hospital struggles, however. For example, No. 3 University of California Irvine Medical Center reported higher net patient revenue and profit from operations, as did No. 4 St. Jude Medical Center in Fullerton and No. 5 Fountain Valley Regional Hospital and Medical Center.
Hospitals are staying profitable by cutting administrative and other costs, said Mike Casey, managed care analyst with Medical Data International in Santa Ana.
“They’ll cut back home health if they have that. They’re cutting every nickel and every dime in every corner,” Casey said. But he added, “even if they do that, they need more money.”
Casey said hospitals couldn’t cut their service levels, even if reimbursement doesn’t keep up with the cost of healthcare. “More people need health services, whether inpatient, outpatient, what have you.”
As for individual hospitals, St. Joseph Hospital-Orange overtook Newport Beach’s Hoag Memorial Hospital Presbyterian to become No. 1 on the Business Journal’s list. Hoag has been ranked either No. 1 or No. 2 on the list since 1993.
St. Joseph reported a 1999 net patient revenue gain of 38%, to $278.5 million from $202 million in 1998. Alan Garrett, its chief financial officer, said the gain primarily reflects accounting changes, rather than accounting for them as revenue offsets.
St. Joseph’s net income from operations, however, fell 41% to $6.4 million from 1998’s $10.9 million.
“We’re seeing more and more HMO business,” Garrett said, citing a shifting payor mix.
“It’s tough to grow HMO market share and have any form of profitability. In fact, it’s just the opposite,” said Larry Ainsworth, St. Joseph-Orange’s president and chief executive.
Hoag Hospital’s net income from operations fell 60.8% to $9.6 million from $24.4 million in 1998. Net patient revenue fell 4%, to $258.3 million in 1999 from $268.1 million in 1998.
“Nobody wanted to pay us as much as they used to,” said Peter Foulke, Hoag’s executive vice president and chief financial officer. Specifically, Foulke said, Hoag saw “a considerable increase” in patient volume from MediCal and county indigent medical services.
“Those are not exactly well-paying payers,” Foulke said. He added that Hoag’s expenses went up, primarily because of salary, benefit and supply costs, including the cost of pharmaceuticals.
Rounding out the first 10 are No. 6 Mission Hospital Regional Medical Center, No. 7 Saddleback Memorial Medical Center, No. 8 Western Medical Center-Santa Ana, No. 9 Children’s Hospital of Orange County and No. 10 Kaiser Foundation Hospital-Anaheim. Kaiser Foundation Hospital is a newcomer to the list, reporting its figures for the first time this year.
Fifteen hospitals on the list reported net losses from operations. They include CHOC, No. 14 Irvine Regional Hospital and Medical Center, No. 15 Western Medical Center-Anaheim, No. 16 Orange Coast Memorial Medical Center and No. 17 South Coast Medical Center.
When it comes to net patient revenue, 17 hospitals each reported drops and rises, with one reporting no change. For example, Mission Hospital’s net patient revenue fell 10% to $129.3 million from $142.9 million in 1998. Irvine Regional’s net patient revenue declined 16%, going to $55.4 million from $65.8 million in 1998.
Among the 17 hospitals that reported revenue gains, St. Jude’s net patient revenue went up 17% to $187.3 million from 1998’s $159.7 million. Fountain Valley saw its net patient revenue jump 22%, to $149.6 million from $122.4 million in 1998.
Some of the largest percentage revenue gains, however, appeared in smaller facilities. Tustin Hospital posted a revenue gain of 304%, to $12.6 million from $3.1 million in 1998. The facility’s 1998 numbers reflect only eight months of activity,it reopened in April of that year under the ownership of Pacific Health Corp., after a two-year closure.
“Basically, we’re generally busier,” said Noel Hecht, Tustin Hospital’s business development director, about the gains. Hecht said several programs drove the increase, including occupational medicine, inpatient and outpatient surgery and an adolescent sub-acute unit.
As for other performance indicators, Orange County hospitals’ total licensed beds dipped slightly in 1999 to 6,781 from 6,881 in 1998. Bed occupancy rose to 45% from 1998’s 41%.
On the employment front, Anaheim Memorial showed the largest percentage change from a year ago, going to 1,191 employees on this year’s list from 819 in the previous year. Memorial Health Services, Anaheim Memorial’s owner, acquired nearby Martin Luther Hospital last fall and merged that facility’s operations into Anaheim Memorial.
