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Published: Sunday, 12/19/2004

Review shows most hospitals ended 2003 with healthy earnings

BY LUKE SHOCKMAN
BLADE STAFF WRITER
ProMedica personnel take an accident victim into Toledo Hospital. ProMedica had $13 million in operating income last year. ProMedica personnel take an accident victim into Toledo Hospital. ProMedica had $13 million in operating income last year.
WADSWORTH / BLADE Enlarge

Toledo-area hospitals and health systems had fatter bottom lines last year, with 2004 looking pretty healthy too, a review by The Blade has found.

Although that's good news if you're a hospital executive buying holiday gifts - most enjoyed nice raises last year - it also helps the local economy because so many people work in health care.

The economy benefits because hospitals can give raises and hire more employees, who, in turn, spend that money at area businesses.

Mercy Health Partners and ProMedica Health System are northwest Ohio's two largest employers with a combined work force of more than 18,000 people. That's more than DaimlerChrysler and General Motors combined in the area. If you add in independents Medical College of Ohio and St. Luke's Hospital in Maumee, that's 4,000 additional jobs.

All of those hospitals and health systems are registered as nonprofit corporations, so The Blade examined their federal tax forms for 2003 - the most recent figures available - and interviewed local and national health executives to help assess the financial health.

The American Hospital Association considers a hospital's operating income to be the most accurate gauge of how well a hospital is doing financially because it's what a hospital makes on its core business: taking care of patients.

Last year, ProMedica had $13 million in operating income, up substantially from just $1 million in 2002. Mercy had $27 million in operating income last year, up from $19 million in 2002. Mercy and ProMedica officials say they're pleased with their results.

"We had improvements, and we'll definitely see growth again this year," said Kathy Hanley, chief financial officer for ProMedica.

"Our success has really been due to developing strong relationships with physicians," said Samantha Platzke, Mercy's chief financial officer. "We're seeing new doctors wanting to come and practice in our facilities and we're reaping the benefits of that" as new doctors bring most of their patients with them.

Ms. Platzke said the most visible proof of the success of its physician efforts can be found in patient volume, which increased 8 percent from October, 2003 to October, 2004. ProMedica, by comparison, had a 2.4 percent growth in patient volume in that time frame.

Of course, all of the money that area hospitals are taking in comes from somewhere: You.

Hospitals get a cash transfusion from two main sources: Health insurance companies - which are supported by premium dollars paid by you and your employer - and Medicaid and Medicare, which are tax-supported government programs.

In reviewing detailed federal income tax filings, what hospitals refer to as "excess of revenue over expenses" is in layman's terms profits. Taken in that simpler context, ProMedica was back in the black last year with $22 million in profits on top of $1.1 billion in net revenues after losing $12 million in 2002.

Mercy's financial picture bounced back in 2002 with $7.7 million in profits and last year it reported overall profits of $40.6 million on top of $655 million in net revenue. Mercy's parent company is Cincinnati-based Catholic Healthcare Partners, which had $2.9 billion in net revenue last year.

The overall bottom line numbers for the area's two biggest health systems - $22 million for ProMedica and $40.6 million for Mercy - include income from investments, which can vary widely from year to year.

Like their parent companies, most of the hospitals within the Mercy and ProMedica systems did well. ProMedica owns Toledo Hospital, Flower Hospital in Sylvania, Bay Park Community Hospital in Oregon, and directly employs about 160 physicians. It also owns a large local insurer, Paramount, which accounted for $433 million of its revenue. Mercy's hospitals include St. Vincent Mercy Medical Center in Toledo, St. Anne Mercy Hospital in West Toledo, and St. Charles Mercy Hospital in Oregon.

Much of Mercy's patient growth has come from St. Anne Mercy, its newest hospital, which opened in 2002. Since then, demand at the hospital has soared. Last year was the first full year of operations for St. Anne, which reported an overall profit of $4.4 million on top of about $76 million in revenue last year. The operational income was almost identical at the fledgling hospital, which recently acquired a nearby apartment building and will relocate tenants in connection with future expansion plans.

Mercy's success has allowed it to move ahead with plans for a $90 million renovation and construction project on its main hospital campus at St. Vincent along Cherry Street, near downtown. In March, Mercy said it would spend $45 million renovating the hospital, and another $45 million building a four-story heart care center on the hospital grounds.

Heart care typically is the largest revenue generator for a hospital. The entire project should be completed in 2008, and Ms. Platzke said Mercy is committed to paying for the project without taking on any additional debt.

"If we can't pay for it, then we shouldn't be doing it," she said.

St. Vincent will have no problem paying for it if last year's financial performance is any indication.

The hospital reported a profit of $26.5 million last year on top of almost $380 million in revenues, and $17.1 million of that was operational income. The numbers are a marked improvement. The hospital lost $12 million in 2001 and $680,000 in 2002.

Mercy's remaining metro-area hospital, St. Charles, didn't fare as well. The Oregon hospital had $127 million in revenues, but made just $328,222 last year after reporting $7.5 million in profits in 2002. Operationally, St. Charles lost money last year to the tune of $4.2 million, due largely to being excluded from several insurance contracts.

Mercy's rival ProMedica opened its Bay Park Community Hospital in Oregon in 2001, about one mile as the crow flies from St. Charles in 2001, and the hospital has lost money every year. Last year, it took in $44 million in revenue but lost $4 million overall. About $3.6 million of that was operational losses. Ms. Hanley said Bay Park has done better this year and she expects the hospital to be in the black by year's end.

Getting a financial picture of ProMedica's hospitals is complicated. For example, at first glance its Toledo Hospital, which is northwest Ohio's largest hospital, did poorly last year. It had a bottom-line loss of $1.9 million on $447 million in revenues.

But ProMedica transferred out large sums of hospital money to cover expenses elsewhere in ProMedica. In Toledo Hospital's case, the largest transfer was $11 million to ProMedica's employed physician group. Ms. Hanley said minus those transfers Toledo did pretty well when it came to taking care of patients, with an operational income of $13.8 million.

Despite the transfers from Toledo Hospital and other hospitals, the ProMedica Physician Group never has reported a profit on its own. Last year, it would have had $10.5 million in losses, but after $26 million in transfers it was able to post a profit of about $15 million.

Flower Hospital has been a strong performer financially for ProMedica for many years, and last year was no exception. It reported $133 million in revenues and a bottom-line profit total of $11.7 million, and almost all of that was operational income.

Like Mercy, ProMedica is using some of its cash to expand. Its previously announced renovation of the Toledo Hospital campus will begin in earnest next year. That project, estimated to cost about $200 million, will involve tearing down part of the hospital and building a new patient tower.

Although smaller players in the local health-care market, Medical College of Ohio Hospital and St. Luke's Hospital in Maumee did relatively well last year.

MCO is a state institution and is on a different fiscal cycle than other hospitals. Its hospital programs had about $4.5 million in profits in fiscal year 2004, which ended June 30, and reported $189 million in revenues. Unlike the area's other hospitals, MCO supports a medical school. Because of state cutbacks, that part of MCO hasn't fared as well, barely breaking even in fiscal 2004 and only because of profits transferred from the hospital.

Still, Dan Morissette, MCO's vice president of finance, is pleased with MCO's performance, calling it a "dramatic improvement" in the last several years.

St. Luke's Hospital rebounded last year after losing $20 million in 2001 and $15 million in 2002, largely because of losing its anesthesia service, which hurt its ability to accept patients. It found a replacement anesthesiology group, and last year it reported $4.5 million in overall profits on top of $265 million in revenues. It had $2.5 million in operating profits.

Though pleased with their finances, many health executives say there are some ominous problems facing health care. The most pressing: the ever-increasing number of patients without health insurance.

"Our biggest challenge is we're seeing a significant increase in community members without insurance, and that concerns me," said Ms. Platzke, who added that Mercy saw an 11 percent increase last year in "self-pay" patients without insurance.

Contact Luke Shockman at: lshockman@theblade.com or 419-724-6084.



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