Columbus hospitals healthy financially despite economy
By Carrie Ghose

Hospital systems adapted to the sour economy with expense cuts, wage freezes and flexible work scheduling, aggressive debt collection and other measures that helped them do better than many analysts expected.

Columbus’ hospitals matched that performance and more. And beyond healthy bottom lines, their annual financial reports show a continuing shift in how and where patients are treated, as outpatient visits ballooned an admissions were mostly flat. For the year ended June 30:

OhioHealth Corp. earned $288 million, including investments and other items, and posted a margin on its operations of 7.4 percent.

Ohio State University Medical Center earned $127 million with a 7.3 percent operating margin.

Mount Carmel Health System earned $51 million, which included an operating margin of 3.8 percent.

Nationwide Children’s Hospital, with about half of its patients on Medicaid, reported a $188 million surplus with a 4 percent margin during the 2009 calendar year.

According to Fitch Ratings, the median operating margin for highly rated hospitals last year was 3.7 percent.

“We’ve been surprised at how strong our highest-performing hospital systems (nationwide) have done through the recession,” said Jeff Schaub, Fitch’s managing director for nonprofit health care. “It is due to really intensive management of expenses and some attention to the revenue side.”

“To be able to turn around and achieve those types of margins tells me the state has a robust Medicaid program, and they’ve been able to control costs,” said Dave Raiford, an analyst with HealthLeaders-InterStudy, a Nashville, Tenn., managed-care market research firm.

Outpatient ascendant

Analysts chalk up the swing toward outpatient care to advancing technology, patients’ demand for convenience and cost-control pressures from private insurers and federal health reform. Each local system reported jumps in outpatient and emergency room visits last year.

“This is where the business is going,” Raiford said.

Ohio State surpassed 1 million outpatient visits in fiscal 2010 as it started opening a string of outpatient centers. The latest opened Nov. 5 in Lewis Center.

“For the first time, we had more outpatient surgery than inpatient surgery,” said Pete Geier, the university’s vice president for health services.

He attributed the shift to the surgery center in the Eye and Ear Institute that opened at Gowdy Field in 2009.

OhioHealth is expanding its 2-year-old Westerville outpatient complex, and Mount Carmel last year opened a standalone emergency department, which also has 10 hospital beds, in Canal Winchester.

“To succeed during these times, we have focused on cost management, volume growth and appropriate capital investments,” OhioHealth CFO Mike Louge said in a statement supplied to Columbus Business First.

Neither he nor Mount Carmel’s CFO were made available for interviews.

Outpatient care brings more volume at less cost, and the numbers are bound to go up because hospitals are employing more physicians and count their office visits. New dedicated observation units for stays of less than 24 hours also put more patients in the outpatient column.

Medicare and private insurers are pressing the industry to integrate hospitals and doctors’ offices to better coordinate care for patients with chronic conditions, Raiford said. Starting in 2012 under health reform, Medicare will pay back some of the savings on such care.

Mount Carmel parent Trinity Health of Novi, Mich., was working on integration before the reform law, Kedrick Adkins, president of integrated services, told bond investors. The number of employed physicians could double over the next two to three years, he said.

Ohio State is merging with its previously separate physician faculty practice, OSU Physicians Inc., and OhioHealth has been acquiring practices for three years.

Repeatable performance?

As unemployment started shooting up in 2008, hospitals expected the worst from patients losing insurance, but the safety net may have worked. Ohio’s Medicaid enrollment hit 1.6 million in November, 9 percent more than a year ago. It was 10 percent in Franklin County.

“Health systems generally are not in love with Medicaid, but it is certainly better than no reimbursement,” Raiford said.

Uninsured patients stayed relatively steady for OhioHealth, its third-quarter report said, while more patients were on Medicaid or bought extended medical benefits for the unemployed. Both charity care – free service to the indigent – and unpaid bills were down over the year, while still at least 8 percent higher than in 2008.

Trinity Health reported that charity care and bad debt rose over the year because of the economy.

Hospitals are aggressively managing expenses, such as delaying equipment purchases or trying to get discounts on supplies, Schaub said. All three Central Ohio systems have incrementally reduced the length of hospital stays, a national mantra in expense management.

Ohio State uses three software systems to match the schedules of direct care and support staff with how many patients are in house and how sick they are, Geier said, helping lead to overtime savings of $2 million.

On the nonoperating side, investment portfolios rebounded, swinging OhioHealth back to a surplus after an investment-driven loss a year ago.

“Some of these were one-shot things,” Schaub said. “We’re very interested in how this profitability is going to be maintained, especially as reimbursements start to get cut."

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