IRS filings paint a mixed portrait of Toledo-area hospital health

12/14/2008

St. Luke s Hospital lost $7.6 million from the business of caring for patients last year as fewer money-making surgical procedures were done and other critical conditions hampered the Maumee hospital s bottom line.

To stanch the bleeding, St. Luke s is recruiting doctors to replace those who have retired or left to help increase business. Only the most essential capital purchases are being made. And while no one has been laid off, employees are taking time off without pay as needed.

Still, losses are expected to continue into next year, with St. Luke s returning to profitability in 2010, said David Oppenlander, the hospital s vice president and treasurer.

There s no panic whatsoever from the senior executive level, said Mr. Oppenlander, adding that hourly employees are more skittish because of scheduling changes.

We re not skimping on patient care or quality. That s our focus, he said.

An annual look at hospital financial performance found St. Luke s in the most troubled position last year, although St. Charles Mercy Hospital in Oregon also was in the red. St. Charles $1.8 million operating loss, however, was folded into parent Mercy Health Partners, which had an overall operating profit of $17.8 million locally.

To determine how area hospitals fared financially last year, The Blade obtained the most recent Internal Revenue Service forms filed by three nonprofit entities, St. Luke s, Mercy, and ProMedica Health System, which generally take nearly a year to become public.

The Blade also gathered other statistics from those three health-care providers as well as from the University of Toledo Medical Center. As a public institution, the former Medical College of Ohio doesn t file the same IRS annual forms, called 990s and filed by all nonprofit organizations, but keeps public financial records.

All Toledo-area hospital operators say this year and next will be tough because of the troubled economy, but they and other hospitals nationwide are adjusting their businesses as a result. All but St. Luke s, for example, have laid off employees this year.

Last year, ProMedica fared the best financially, with an operating profit of $50.2 million, giving it a 3.39 percent operating margin. (Operating profit is the amount of money hospitals make from treating people; operating margin is a profitability measure computed from revenues as well as costs related to patient care.)

Nonprofit hospitals nationally have hit operating margins of 3 percent to 5 percent for awhile, but this year s results likely will be a percentage point below what hospitals estimated, said Nick Hilger, senior vice president in the health systems group for Ingenix, an information and consulting firm.

Hospital managers need to be on top of managing cash flow, reimbursement contracts, and other business aspects, Mr. Hilger said.

Not everything in the hospital is about nurses and about needles and syringes, he said.

ProMedica s chief executive, Alan Brass, last year continued to have the highest total compensation among local heads of hospitals and their systems. He received nearly $1.9 million in salary and other perks last year, and as the economy worsened, Mr. Brass recently agreed to stay on through 2010 instead of retiring next June.

Leaping to the No. 2 position last year among top executives, meanwhile, was Frank Bartell III, St. Luke s now retired president and chief executive.

While Mr. Bartell s 2007 salary was about $365,000, his total compensation last year was nearly $1.9 million. Mr. Bartell received a $1.5 million lump-sum payment from a supplemental retirement plan that had accumulated money over several years.

St. Luke s last year spent money on doctor recruitment and invested in a multiyear electronics medical records program that includes helping physician offices acquire software, said Mr. Oppenlander, the vice president and treasurer.

It also started treating more patients without insurance as people lost health-care coverage. St. Luke s is providing charity care or giving discounts to those with enough income to afford partial payments, he said.

We understand there s a lot of need in the community, and we re trying to be there as best we can, Mr. Oppenlander said.

Moody s Investors Service recently downgraded St. Luke s bond rating for $11.2 million of outstanding revenue bonds issued by Maumee, although it remains investment grade. Last month, Moody s revised its outlook for the entire non-for-profit health-care sector to negative because of damage from the credit crisis and bad economy.

Nationwide, weakened financial markets both have hurt hospital investments and the ability to issue bonds, and patient volumes have flattened or dropped as people put elective surgeries and diagnostic tests on hold, said Moody s analyst Lisa Martin, a senior vice president.

St. Luke s has been affected by those nationwide economic conditions as well as local competitive pressures, and losses are magnified because the Maumee hospital is small and not affiliated with other providers, she said.

The larger the hospital, the easier it is to absorb, Ms. Martin said.

St. Luke s is committed to staying independent, and it has a strong balance sheet and long-term plan, Mr. Oppenlander said. It has renegotiated a reimbursement contract with Anthem Blue Cross and Blue Shield that will start in July so customers with that insurance can seek covered care there, which along with other measures will help the hospital return to profitability, he said.

Looking at local hospitals on an individual basis, ProMedica s Flower Hospital in Sylvania again had the highest operating margin last year at nearly 10 percent.

Among local Mercy hospitals, all of which are part of Catholic Healthcare Partners in Cincinnati, St. Anne Mercy Hospital in Toledo had the highest operating margin at nearly 5 percent. Mercy s overall operating margin last year was 2.07 percent, which is within the hospital operator s annual goal.

St. Charles, which had an operating loss last year, lost a reimbursement contract with Anthem in 2006. That contract has been renegotiated, and St. Charles operations have improved this year, said Samantha Platzke, Mercy s chief financial officer.

For the fiscal year ending June 30, UTMC had an operating margin of 3 percent after operating profit came in at $7.6 million, more than $2.5 million higher than budgeted.

Contact Julie M. McKinnon at:jmckinnon@theblade.comor 419-724-6087.