Local hospital profits reflect financial health [The Blade, Toledo, Ohio]

Dec. 18--Even before ProMedica's Chicago attorneys made a court appearance -- much less spent eight weeks in the nation's capital for a Federal Trade Commission administrative trial -- the firm racked up $4.2 million in bills.

That amount to McDermott Will & Emery, primarily to defend ProMedica and partner St. Luke's Hospital from anti-trust allegations, is part of the reason ProMedica spent $5.8 million in outside legal fees last year. ProMedica didn't have even $500,000 in outside legal fees the year before.

Still, ProMedica's operating margin for last year edged up to nearly 3.7 percent, with all of its Toledo-area hospitals except St. Luke's making money -- lots of it. ProMedica last year had $62.7 million in operating profit, based on revenues received from the business of caring for patients. The amount includes St. Luke's financial results from September through December.

St. Luke's finances are improving as well, and for the first time since 2006, the hospital is expected to be in the black this year, said Kathleen Hanley, ProMedica's chief financial officer.

Many nonclinic functions at St. Luke's have been consolidated with ProMedica, and patient volumes have grown, Ms. Hanley said. Despite the ongoing case, the FTC has allowed some other changes, such as moving rehabilitation beds from St. Luke's to Flower Hospital in Sylvania to free space in the Maumee hospital, she said.

"We have seen significant improvement there with our ongoing efficiencies," Ms. Hanley said.

Comparing hospitals

Every year, The Blade examines how well Toledo-area hospitals are faring financially by obtaining the most recent Internal Revenue Service forms, called 990s, filed by the nonprofit entities and inquiring about how operations are going this year. The University of Toledo Medical Center doesn't file the same IRS forms as the other hospitals, but it does keep public financial records.

All of that information, as well as other statistics from ProMedica, Mercy, and the UTMC, the former Medical College of Ohio hospital, are compared to determine the financial health of the hospitals. None is a for-profit entity, but they must generate enough revenue to pay their expenses and reinvest in facilities and equipment. They often shoot for a roughly 3 percent operating margin.

Overall, hospital profits in the area were up last year over 2009, and the hospitals are performing better financially than in some other parts of the country, said Scott Hendrickson, senior vice president of OptumInsight, a health information firm based in Eden Prairie, Minn.

This year, the main focus for hospitals nationwide was getting ready for changes associated with federal health-care reform, including moving to pay-for-performance reimbursements, handling upcoming coding changes for diagnoses and procedures, and assessing needs for physician services, Mr. Hendrickson said.

"We had a year of preparing and looking at how reform is really starting to take shape and what it's going to mean," he said.

Executive pay

Executive compensation is another much-watched component of The Blade's annual assessment.

Alan Brass, who retired as ProMedica's chief executive in 2009, received nearly $1.6 million last year as part of his retirement package. He will receive another payment this year, according to ProMedica.

The only other Toledo-area hospital executive who received more last year, at $1.8 million, was Steven Mickus, who became chief operating officer of Mercy parent Catholic Health Partners in May, 2010. He also served double duty as chief executive of Catholic Health Partner's northern Ohio division, which includes Mercy facilities as well as facilities in Lima, Ohio, and Lorain, Ohio, until mid-2011.

As far as the financial status of area hospitals goes, St. Luke's was not the only one with an operating loss last year. Although St. Luke's lost $1.7 million last year for a negative operating margin of 1.02 percent, an improvement over 2009, Mercy St. Anne Hospital lost $4.4 million, for a negative operating margin of 4.3 percent.

St. Luke's was an independent hospital when it started losing money in 2007, and ultimately sought a partner. The hospital's merger last year into ProMedica is being scrutinized by the FTC, which recently won a ruling from an administrative law judge deeming the merger anti-competitive. ProMedica has appealed.

"We're still a ways away in terms of having resolution," said Ms. Hanley, the chief financial officer.

ProMedica officials say the outside legal expenses for this year are expected to be comparable to the $5.8 million spent in 2010. They include fees for expert consultants, it said.

Overall, ProMedica's financial performance this year will be consistent with that in 2010, Ms. Hanley said.

Mercy St. Anne

St. Anneis part of Mercy, which remains committed to the nine-year-old hospital and adding services there, officials said.

This year, St. Anne started its senior emergency room, a section of the existing unit with staff trained to treat geriatrics. The unit has nonskid flooring, thicker mattresses, and other amenities geared toward elderly patients.

The West Toledo hospital has shortened the amount of time patients need to be in the hospital by using a care-coordination center, where nurses electronically schedule and track every patient's admission, unit placement, tests, and other information.

And Mercy has employed doctor groups near St. Anne who will help expand services, said Todd Warner, chief financial officer for Mercy and other CHP hospitals in Lorain and Lima, Ohio. "We're looking at different strategies right now," Mr. Warner said.

The hospital may not be profitable this year, either, but it is doing better than in 2010, he said.

Mercy overall had operating profit of $29.8 million last year for a margin of 3.5 percent. Mercy St. Vincent Medical Center alone accounted for $24.2 million of operating profit, and the hospital had a 5.1 percent operating margin.

This year will not be as profitable for Mercy, which like other hospitals is adjusting to changes in Medicare and Medicaid that in some cases will decrease reimbursements, Mr. Warner said.

"At this point in the year, [we] probably won't do as well as we did in 2010," Mr. Warner said.

The Toledo-area hospital with the best financial performance remained ProMedica's Flower Hospital in Sylvania. It had $25.9 million in operating profit last year for a margin of 13.63 percent.

UTMC improves

UTMC's operating profit jumped to $14.3 million for the fiscal year that ended June 30 with a margin of 5.4 percent. Those figures were far higher than the $8.6 million operating profit and 3.1 percent operating margin that were expected.

"We had a good year -- we had a very good year," said Scott Scarborough, senior vice president and executive director of the hospital.

The hospital has looked at labor and supplies as places to achieve savings, he said.

For the current fiscal year, UTMC laid off 80 employees, including 27 patient-care aides who didn't get jobs elsewhere. The hospital had 64 patient-care aides, a position similar to a nurse's aide, but eliminated those jobs in favor of having UT nursing students perform those duties through a co-op program.

UT's board in March approved a $50 million bond issue to renovate the hospital, including converting two-bed patient rooms to private rooms and having two new operating rooms. Dana Conference Center on the Health Science Campus will be gutted and renovated next year to house a stand-alone cancer center, a $7.5 million project that would have cost $25 million if starting from scratch, Mr. Scarborough said.

If business continues to stay up, UT may have to increase capacity at the hospital or partner with another provider to help distribute capacity, he said.

"We are busy right now," Mr. Scarborough said. "This is a funny business. You worry when you're not busy. You worry about when you're busy."

Contact Julie M. McKinnon at: [email protected] or 419-724-6087.

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