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Some for-Profits See Vitals Turn Sour Quickly

Posted on: Tuesday, 16 August 2005, 03:00 CDT

Area for-profit hospitals had five wins and five losses in 2004.

Five out of 10 for-profit hospitals in Palm Beach County and the Treasure Coast lost money last year, according to state records. Tenet Healthcare's Good Samaritan, Palm Beach Gardens and St. Mary's medical centers accounted for $132 million of the losses.

The financial landscape changed quickly for the for-profit hospitals, which all had made money in 2003.

The red ink last year isn't that surprising since most hospitals nationwide are operating on profit margins of about 2 percent, said Mike Smith, a senior manager at Ernst & Young in West Palm Beach and a member of the board of directors of the Health Care Financial Management Association's Florida chapter.

Among the area's for-profit medical centers, Ernst & Young audits all the hospitals owned by HCA Inc. and advises most other local hospitals.

The thin margins are the result of a number of factors, including more uninsured patients, lower Medicare reimbursements that aren't keeping up with costs and higher medical malpractice insurance prices.

"It doesn't take much of a blip in any given year to put a hospital in the red," Smith said.

Payments haven't kept pace

Nationwide, 2004 was a pretty good year for hospitals, said Peter Young, a Fort Myers hospital consultant. But he said some hospitals are pulling in less money because of the patients they treat and the procedures they do. He said hospitals performing more surgeries are likely to do better because Medicare pays more for surgical procedures than it does for treating illnesses. And it is better for a hospital to have more patients with Medicare and commercial insurance because they pay better than Medicaid. But the payments still have not kept pace with costs.

"Over the last few years the cost of operating a hospital, by the time you take labor, supplies, fancy technology - all that has escalated manifold more than Medicare reimbursement increases," Young said.

Several of the local for-profit hospitals had significant blips last year, including three owned by Tenet, the county's largest hospital operator.

Palm Beach Gardens Medical Center lost the most money of any area hospital last year, $60.93 million, compared with a $8.15 million profit in 2003. St. Mary's Medical Center lost $54.67 million last year, down from an $10.7 million profit the previous year. And Good Samaritan Medical Center lost $16.39 million, down from an $8.48 million profit in 2003. All three Tenet hospitals reported declining operating revenue, with Good Samaritan taking the biggest tumble, with revenue falling $37.6 million last year.

Both Palm Beach Gardens and St. Mary's wrote off all their goodwill, or intangible assets, on their books. Gardens took a charge of about $52.2 million and St. Mary's took a charge of $43.8 million. In 2003, goodwill was 20 percent to 30 percent of each hospital's total assets. The write-offs deepened the losses for the two hospitals. Before the charges, St. Mary's lost about $25.3 million from operations, and Gardens Medical Center lost about $10.7 million from operations.

"That's quite dramatic when you think about the growth in the population and the increasing demand for medical care - they're saying this thing isn't worth it," Young said of the steep goodwill write-offs.

He said the hospitals probably were forced to write off their goodwill because their value has dropped since Tenet purchased them. Tenet bought Good Samaritan and St. Mary's in 2001 for $244 million. In 1994, Tenet, then called National Medical Enterprises, bought Palm Beach Gardens Medical Center as part of its $2 billion acquisition of American Medical International Inc.

In response to questions about its large goodwill write-offs last year, Tenet said in a statement that it came after assessing the hospitals "as well as industry indicators, trends and challenges that impact the operating results on a historical and trending perspective."

A spokesman for Tenet was unable to provide further details. All three Tenet hospitals declined to provide officials to be interviewed about the hospitals' finances for this story.

New procedures, less money

Gardens Medical Center said in a statement that the growth of less invasive, less lucrative medical procedures has affected the hospital. For example, more patients are receiving stents to open up blocked arteries rather than having open-heart surgery. The statement said the hospital makes $10,000 for every stent inserted in a patient and $30,000 for every open-heart surgery. Meanwhile, HCA's JFK Medical Center in Atlantis and Columbia Hospital in West Palm Beach lost $4.18 million and $3.5 million, respectively. In 2003, JFK made $11.9 million, while Columbia made about $519,000.

All the area's for-profit hospitals that lost money in 2004 saw increases in bad debt, which includes patient-care bills that went unpaid. About 230,000 people in Palm Beach County are uninsured, up from 170,000 in 1999, according to a survey released last year by the state.

Even profitable hospitals here are giving out more free health care. Robert Preato, chief financial officer of Palms West Hospital, said the hospital's total amount of uncompensated care rose to $26 million in 2004, its highest amount ever, and grew slightly faster than the growth in patient admissions. HCA, the hospital's parent company, has started a discount program for the uninsured.

"It may drive more uninsured volume to our doors," Preato said. "I can't really tell you what that impact will be."

The five for-profit hospital moneymakers last year were Tenet's Delray Medical Center and West Boca Medical Center and HCA's Lawnwood Regional Medical Center, St. Lucie Medical Center and Palms West.

Palms West, in Loxahatchee, earned $10.44 million, up from $9.16 million in 2003. Robert Preato, its chief financial officer, credited the growing population in the western suburbs. He said Palms West had patient occupance of 98 percent in 2004. The other western-communities hospital, Wellington Regional Medical Center, hasn't yet submitted its 2004 financial report to the state.

stephanie_horvath@pbpost.com 0

Financial health

Eight of the region's 16 hospitals reported losing money in 2004, up from only two operating in the red in 2003. Experts say the increased losses are due to higher operating costs, low reimbursements from Medicare and private health insurance carriers and an increasing number of uninsured patients.

Hospital, Finance Period

Bethesda Memorial Hospital, 10/1/03 to 9/30/04

Boca Raton Community Hospital, 7/1/03 to 6/30/04

Columbia Hospital, 1/1/04 to 12/31/04

Delray Medical Center^, 1/1/04 to 12/31/04

Glades General Hospital *, 5/1/04 to 9/30/04

Good Samaritan Medical Center^, 1/1/04 to 12/31/04

Indian River Memorial Hospital 10/1/03 to 9/30/04

JFK Medical Center, 1/1/04 to 12/31/04

Jupiter Medical Center, 10/1/03 to 9/30/04

Lawnwood Regional Medical Center, 1/1/04 to 12/31/04

Martin Memorial Medical Center^^, 10/1/03 to 9/30/04

Palms West Hospital, 1/1/04 to 12/31/04

Palm Beach Gardens Medical Center^, 1/1/04 to 12/31/04

St. Lucie Medical Center, 1/1/04 to 12/31/04

St. Mary's Medical Center^, 1/1/04 to 12/31/04

Wellington Regional Medical Center **, n/a

West Boca Medical Center^, 1/1/04 to 12/31/04

^ All Tenet hospitals switched from a fiscal year to a calendar year in 2003. The 2003 figures are from June 1, 2002, to May 31, 2003.

^^ Martin Memorial said its 2004 net income was actually $4.178 million.

* Glades General Hospital was bought by the Health Care District of Palm Beach County from Province Healthcare in May 2004.

** As of press time, Wellington Regional's financial information was not available from the state.

Profit: m. = million

2004 2003 Percent

Hospital profit profit change

Bethesda Mem. Hosp. $19.3 m. $15.3 m. 26.1%

Boca Raton Comm. Hosp. $26.5 m. $1.89 m. 1,302%

Columbia Hosp. -$3.5 m. $518,801 -775%

Delray Med. Centr^ $10.22 m. $29.9 m. -65.8%

Glades Gen. Hosp. * -$327,904 $11.1 m. 97%

Good Samaritan Med. Cent.^-$16.39 m. -$8.48 m. -293%

Indian River Mem. Hosp. -$1.59 m. -$3.19 m. 50.2%

JFK Med. Cent. -$4.18 m. $11.9 m. -135%

Jupiter Med. Cent. -$1.72 m. $3.63 m. -147%

Lawnwood Reg. Med. Cent. $8.09 m. $5.28 m. 53.2%

Martin Mem. Med. Cent.^^ $18.63 m. $4.37 m. 326.3%

Palms West Hosp. $10.44 m. $9.16 m. 13.97%

Palm Bch Gardens Med. Cent.^

-$60.93 m. $8.15 m. -848%

St. Lucie Med. Cent. $11.74 m. $9.74 m. 20.5%

St. Mary's Med. Cent.^ -$54.67 m. $10.7 m. -611%

Wellington Reg. Med. Cent. ** n/a $4.85 m. n/a

West Boca Med. Cent.^ $3.83 m. $9.9 m. -61%

^ All Tenet hospitals switched from a fiscal year to a calendar year in 2003. The 2003 figures are from June 1, 2002, to May 31, 2003.

^^ Martin Memorial said its 2004 net income was actually $4.178 million.

* Glades General Hospital was bought by the Health Care District of Palm Beach County from Province Healthcare in May 2004.

** As of press time, Wellington Regional's financial information was not available from the state.

Source: Florida Agency for Health Care Administration

Source: Palm Beach Post

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