While most companies suffered through a brutal recession in 2009, South Florida hospitals enjoyed a banner year, with a combined 68 percent boost in profits.
That’s good news for the health care industry, which is one of the few sources of job growth and construction projects in South Florida. The vast majority of local hospitals are on strong financial footing, although the uncertainties of health care reform have them on edge.
South Florida hospitals earned $387.5 million last year, according to a review of fiscal year 2009 results they submitted to the Florida Agency for Health Care Administration. That’s up from earnings of $230.6 million in 2008.
The only hospital that was late to report was Wellington Regional Medical Center – for the third year in a row.
South Florida Hospital and Healthcare Association President Linda Quick said the numbers were so good that she worries managed care plans could use them against hospitals when negotiating rates this year. She noted that Florida HMOs’ profits grew.
Amazingly, the top earning and biggest money-losing hospitals of 2008 traded places in the standings. Jackson Health System’s $91.9 million profit from hospital operations was followed by a $178.2 million battering in 2009, as the public system was swamped with bad debt and charity care. Miami Children’s Hospital, on the other hand, reversed course from a $72 million loss in 2008 to gain $94.9 million last year.
Most of that change had little to do with the nonprofit hospital’s operations, Miami Children’s CFO and Senior VP Pedro Alfaro said. The hospital showed a non-cash gain of $75 million in 2009 from realized investment gains, plus a benefit from an interest rate swap. The year before, the hospital’s losses came from the same two places, as the stock market suffered a down year, he said.
Most South Florida hospitals don’t count investment performance as part of their operations because they are held in parent organizations.
Although its investments are struggling this year, Miami Children’s is expecting a good year for its hospital operations due to an expanded operating room and a new ambulatory center in west Kendall, Alfaro said. Miami Children’s benefitted from a common trend in 2009 – increased revenue.
Local hospitals boosted their combined net operating revenue to $10.8 billion in 2009 from $10.2 billion the year before. Their combined profit margin rose to 3.6 percent from 2.3 percent. That came despite bad debt climbing to $2.2 billion from $1.85 billion, and charity care growing to $2.77 billion from $2.4 billion. Those were the impacts of people losing jobs and health coverage.
Quick said that, going into 2009, hospitals knew they would give out more uncompensated care, so they trimmed expenses, especially staff travel, education and community events. Hospitals also put many development projects and equipment purchases on hold, she said.
The tighter labor market for health care workers also kept expenses down, said Steven Sonenreich, president and CEO of Mount Sinai Medical Center, which regained profitability last year. During the housing boom, it was challenging to retain employees because they couldn’t afford to live in South Florida. Now, they can’t sell their homes and their investment accounts have taken a hit, so few want to leave their jobs, he said. That cuts down on employee recruitment expenses, which can be quite high in health care.
Mount Sinai’s strategy to attract more patients paid off. It saw more cardiac patients after hiring prominent cardiologists and affiliating with Columbia University. With its outpatient centers and freestanding emergency room in Aventura growing in admissions, the nonprofit plans to open a 3,500-square-foot cardiology office in Hialeah, Sonenreich said.
Tenet Healthcare Corp. was another strong performer, with a 152 percent earnings improvement at its 10 South Florida hospitals. Half of those hospitals are in Palm Beach County, where the for-profit found most of its gains, especially at St. Mary’s Medical Center and Delray Medical Center.
Tenet spokeswoman Shelly Weiss said the company spent more than $66 million on capital and equipment at its South Florida hospitals last year. Baptist Health South Florida has also been expanding its hospitals and outpatient centers. The nonprofit surpassed both Tenet and HCA to claim the most revenue of any local hospital operator last year. HCA could close the gap if it completes its purchase of Mercy Hospital in Miami. But Baptist Health has a hospital under construction in west Kendall that should give it a revenue jolt.
Jackson IS the exception
Unfortunately for Jackson Health System, Miami-Dade County’s public health safety net missed out on the profit party. It is undergoing a major restructuring plan.
Some of the reasons why are obvious. Of every dollar of South Florida charity care reported to the state, Jackson reported 38 cents. It reported 26 cents for every dollar of bad debt – although much of that came after the hospital system wrote off accounts receivable from prior years as uncollectable.
Although Jackson has not received the extra $50 million in Medicaid funding it hoped Congress would appropriate, the hospital system is on target to lose between $50 million and $65 million in the fiscal year ending Sept. 30, COO and VP David Small said. That might sound bad, but it’s better than the $230 million loss it projected before it started restructuring.
Jackson has more work to do next year, as it anticipates a $27.5 million hole in its property tax income due to declining values. Health care reform will give more patients access to insurance and reduce the uncompensated care for hospitals, but those patients may not visit Jackson once they have a choice, he said.
Stephen Dresnick, president of Miami-based Dresnick Healthcare Advisors, said the management at Jackson is like the Keystone Kops who can’t shoot straight, while many hospitals around them have improved their performance. To run right, he said, it must fix its relationship with the University of Miami, which staffs much of the hospital with its medical school physicians.
Small said Jackson is re-emphasizing its cooperation with UM. It hopes to launch co-branded marketing initiatives and perhaps outpatient centers with the university, he said.