Every year Virginia’s hospitals cry poverty as justification for expanding Medicaid, and every year their profits just grow bigger.
Admittedly, hospital profits did decline 0.6% in 2015. But hospitals more than made up the difference in 2016. According to an annual update on Virginia hospital profitability by the Thomas Jefferson Institute for Public Policy (TJI), hospital profits increased 13.9% that year. Over the past four years, Virginia hospital profits have increased 36%.
Some hospitals are more profitable than others, of course, and it’s true, as the Virginia Hospital Association reminds us, that some hospitals lose money. Twenty-eight Virginia hospitals ran deficits in 2016 compared to 42 in 2012, reports TJI, but that’s not the problem it might seem. Some money-losing hospitals are new, and their losses are temporary as they build market share. Other hospitals, typically rural, are part of larger health systems; while they may operate at a deficit, they funnel patients to larger tertiary-care hospitals where the real money is made. And at least one, Sheltering Arms in the Richmond area, has a business model that relies heavily upon philanthropy.
Remarkably, most of the industry’s $2.15 billion in profits come from the non-profit sector. For-profit Hospital Corporation of America (HCA) accounts for $244 million of the industry’s profit. Other for-profits have a negligible market presence in Virginia. The vast majority of profit comes from the non-profits. Here are the top earners:
Let’s be clear: I’m not attacking hospital profitability. We want our hospitals to be financially healthy. Who wants to have surgery in an institution that’s always cutting corners, can’t hire competent staff, and lacks the capital to reinvest in new technology and best practices?
But it is a legitimate question to ask, especially of nonprofit hospitals, how much profit is enough? The state grants nonprofits exemption from property taxes, corporate income taxes, and other taxes worth hundreds of millions of dollars to support their public mission. What is that public mission, if not providing medical care to the community at large — and especially to the poor?
The Virginia Hospital Association, I hear, will propose to finance Medicaid expansion by means of a hospital bed tax. That gambit will have the political virtue of avoiding a highly visible general tax increase, such as the state income tax or the sales tax, and embed the tax all-but-invisibly in your hospital bill where you likely will never take notice of it because hospital bills are indecipherable and your insurance company is covering most of it anyway. The proposal also will have the practical effect of transferring wealth from paying patients to nonpaying patients. Paying patients are being dunned already through opaque hospital bookkeeping to support the existing Medicaid program, which notoriously pays less than Medicare or private insurance. With a bed tax, paying patients will be dunned again.
But hospitals will retain their revenue surpluses to spend as they please.
Democrats feel terrible that some 240,000 low-income Virginians are stuck in what the center-left Commonwealth Institute think tank calls the health care coverage gap: States a recent paper: “They are unable to get quality, affordable coverage through the federal insurance marketplace because they don’t make enough money, and they can’t qualify for Medicaid because they make too much.”
We’ll see how Democrats propose funding the Medicaid expansion, but the money has to come from somewhere — either from taxpayers generally or the hospital bed tax. If past is prelude, Dems will have few qualms about shifting the burden to either one. After all, as Governor Ralph Northam opined yesterday, Medicaid expansion is “a matter of basic economic justice.” Unfortunately, economic justice, as we have learned from years of experience, is for the poor, not for middle class taxpayers and insurance payers.
In my taxpayer-friendly view of economic justice, perhaps we should be asking Virginia’s hospitals what the public is getting for nearly $2 billion in nonprofit profits. The press doesn’t cover hospital board meetings to report on how that money is disposed of. It doesn’t have the resources to do so. Perhaps the Joint Legislative Audit and Review Commission could determine how much nonprofit hospitals are getting in state and federal tax breaks and how hospitals are redirecting the money. I’d sure like to know before Governor Northam and his friends in the legislature salve their social-justice consciences by sticking it again to the middle class.
Update: The Virginia Hospital and Healthcare Association objects to TJI’s methodology for calculating profits. Says spokesman Julian Walker:
“In past studies of this sort, the Thomas Jefferson Institute has miscounted, included non-hospitals in its tabulation, evaluated total margins rather than operating margins which are a truer measure of fiscal condition, factored in investments and other assets in its calculations of profit, among other calculations that have resulted in a skewed and imbalanced impression of what the actual data from VHI shows. …
From 2008-2016, the annual rate of Virginia acute care hospitals with negative operating margins has ranged from 38 percent to 23 percent. Among rural acute care hospitals, the range is 63 percent to 40 percent.”
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