Ms. Bai, who also is on the faculty of the Williams School of Commerce, Economics, and Politics, included 2013 financial data from three Toledo hospitals in the study.
Based on that data, ProMedica Toledo Hospital was not profitable in 2013 and lost $150 on each patient at discharge, she said.
Mercy Health St. Vincent Medical Center was in the black that year, as was St. Anne Hospital. In fact, St. Anne was the most profitable of all three, bringing in $379 per patient, which was still quite average when looking at hospitals across the country, she said.
By comparison, the most profitable hospital in the national study was Gundersen Lutheran Medical Center in La Crosse, Wis., a nonprofit, which generated more than $4,000 per patient at discharge, she said.
Not surprisingly, the study found public hospitals and very small hospitals (those with 50 or fewer beds) made the least amount of money. The study concluded that hospitals are earning substantial amounts of money in areas not related to patient care.
Size of system matters
Mercy Health St. Vincent Medical Center, St. Anne, and St. Charles hospitals in the Toledo area are part of a much larger company. The parent company, Mercy Health (formerly Catholic Health Partners), is the largest health system in Ohio. It has 23 hospitals, multiple physician groups, and locations in Ohio and Kentucky.
ProMedica is a regional health system, with 14 hospitals and multiple physician offices in northwest Ohio and southeastern Michigan. ProMedica also owns three separate Paramount health insurance companies. With 17,000 employees, its the largest employer in Toledo. Paramount has about 327,000 members.
The University of Toledo Medical Center is a much smaller public university-owned health system. With just one stand-alone hospital, the multimillion dollar health system did not have great financial results in the fiscal year that included part of 2014 and a portion of 2015. UTMC, unlike the other hospitals in town, runs on a fiscal calendar from July 1 to June 30, said David Morlock, chief executive officer.
With a slim operating margin of just 0.4 percent, the hospital systems operating income was just more than $1 million at the end of the 2015 fiscal year.
In the current fiscal year, which ends in about two weeks, the hospital is showing signs of a rebound, Mr. Morlock said. At the end of March this year, its operating margin had increased to 1.6 percent.
We have effected a pretty positive operating margin turnaround, Mr. Morlock said.
He attributed the better numbers to a small increase in market share for the hospital and more patients visiting the physician groups owned by UTMC.
Its not surprising that UTMC is not performing as well as the other hospital systems in Toledo, Mr. Slates said.
It is a teaching hospital and small compared to the others. And they have a different mission, he said.
UTMC is a part of the University of Toledo, so some of its financial information cant be reported separately, Mr. Morlock said.
The two big hospital systems in Toledo, Mercy Health and ProMedica, are pretty close in terms of financial performance, but it appears ProMedica is more profitable, Mr. Slates said.
ProMedica is more profitable than Mercy because their operating margins are higher. That means that they make more money from their operations, he said.
He noted that the three Paramount insurance companies, which are owned by ProMedica, are contributing to the companys overall profit margins and likely are what is giving ProMedica the edge over Mercy.
HealthSpan Partners, an insurance company and medical provider that was affiliated with Mercy Health, which is Mercys parent company, was recently taken over by Medical Mutual of Ohio.
Mercy Health decided to exit the insurance business because HealthSpan was losing money, Mercy officials said. Because of unexpected significant losses related to discontinuing that business this year, Mercy Healths bond rating was downgraded by Moodys Investors Service on Thursday, from A1-stable to A2-negative outlook. The downgrade means it will cost them more to borrow money.
The hospital systems performance in 2015 was down over prior years, and the system is expecting moderate declines in profit margins in 2016, according to the Moodys report.
Toledo is Mercy Healths second largest market, but the Toledo region is underperforming compared with others around Ohio, the report said.
Mercy Health officials said they have addressed all the issues that led to the downgrade.
We remain well positioned to retain strong credit ratings in the future, Mercy officials said in a statement.
In 2015, Mercys parent company earned $4.3 billion in operating or patient revenue. The Toledo regions portion of those earnings, which includes hospitals in Toledo, Tiffin, Defiance, and Willard, was $989 million.
After doing things such as adjusting for expenses, depreciation on major purchases, paying interest on loans, and paying taxes, Mercys actually had a net loss of more than $6 million in the Toledo region.
The company took a big hit in its investments, which contributed to the negative numbers, said Matt Love, Mercy Healths senior vice president of finance for the northern region.
If you look at your own retirement accounts, last year was a bad year so that is primarily investment returns, Mr. Love said.
Overall, however, 2015 was a strong year for Mercy Health, he said.
Reserves build up
For ProMedica, 2015 also appeared to be a solid year for the company. It ended 2015 with $2 billion in patient revenue from its health-care operations. When combined with revenue from the Paramount insurance companies, it brought in some $3.1 billion. Net income for the two entities combined was $123 million for 2015.
According to ProMedicas financial documents, revenue for its health-care operations in 2015 increased $21.6 million over the same period in 2014. They attribute the growth partly to increases in outpatient procedures.
In 2016, however, the company apparently is sensing some troubling signs. In late May, ProMedica offered buyouts to 1,200 older employees to reduce costs.ProMedica officials declined to provide specifics about the early retirement package and said terms will be tailored to individual employees. They have 45 days to decide.
ProMedicas operating income declined by $27.5 million in the first three months of 2016 when compared to the prior period in 2015.
The companys financial report said that decline was driven by significant expenses from an electronic health record launch, a decline in operating performance, the start-up of additional urgent care centers, and more philanthropy.
ProMedica officials said early retirement packages, however, were not directly related to declining operating income in the first part of 2016.
Both ProMedica and Mercy Health officials said it is important that they continue to invest money into improving their facilities and equipment to stay competitive.
Mercy Health announced last March plans for a $34 million renovation project at St. Vincent Medical Center to expand emergency room and surgical services. The health system has also increased its reach into the suburbs by building free-standing emergency rooms in Sylvania and Perrysburg.
Were building smaller outposts that make access easier and enhance convenience, said Mercy Health spokesman Megan Manahan. I think our investments are prudent in that manner.
Many hospitals are issuing bonds and going into debt to finance expansion projects, Ms. Bai said.
They call it the medical technology arms race, she said. They feel compelled to have the latest and the greatest.
Hospital systems are using a combination of bonds, donations, and cash reserves to finance expansion and building projects, Mr. Slates said.
Its a common practice for nonprofit hospitals to borrow money, said Nickolas Vitale, UTMC chief financial officer, who oversees a public hospital.
They can borrow at tax-exempt rates which are really low, he said, speaking of ProMedica and Mercy Health.
Just as families put money in savings accounts for big-ticket items, hospitals transfer some of the money earned after paying all expenses into their own much more complex savings accounts to accumulate cash, Mr. Love said.
A portion of the companys net income at the end of the year gets converted to cash, said Gary Akenberger, interim CFO and senior vice president of finance at ProMedica.
ProMedica, which just announced this week plans to buy much of the Marina District in East Toledo for $3.8 million from Dashing Pacific Group Ltd., and soon thereafter sell it to the Metroparks of the Toledo Area, is also in the midst of several other capital projects. The health company, which is also refurbishing the former steam plant along the downtown riverfront into its new headquarters a $50 million project as well as building a patient tower at Toledo Hospital, has been saving money for years for these projects, he said.
ProMedica had $363 million in cash reserves, and Mercy Healths parent company had some $147 million in cash at the end of 2015.
We have been good financial stewards. We have appropriate cash reserves to withstand the bad years, Mr. Akenberger said.
What hospitals decide to do with cash reserves is totally up to them, Ms. Bai said. Some may wonder why they dont return some of their profits back to patients in the form of decreased charges, she said.
Why would any business lower the price if there is no pressure for them to do it? she asked.
Providing medical care is very expensive, Mr. Slates said. Local hospitals are operating on slim margins, and they are vulnerable to very slight changes in revenue.
If things go bad for a year, it doesnt take much for that margin to slip, he said.