In addition to analyzing data for variations in net income from patient care versus non-patient-care sources among the types of hospital control, the study described in the article "Can Net Income from Non-Patient-Care Activities Continue to Save Hospitals?" also analyzed variations between hospitals with positive versus negative net income from patient care services.

Type of Control

As a group, the 561 government hospitals studied lost the most on patient care services during the study period (see exhibit 1). They started with net income from patient care in FFY05 of -$5,534,909,614, and net incomes from patient care remained negative in all periods studied, ending in FFY09 with net income from patient care services of -$7,677,156,632. Although the government hospitals were able to achieve the highest average annual rate of increase in net revenue from patient care services (8.1 percent), the annual revenue increases were more than offset by the highest average annual rate of increase in total operating expenses from patient care services (8.3 percent). However, the government hospitals were able to maintain significant levels of net income from non-patient care activities in all years studied, which resulted in positive net income in all years except FFY 2009. Total net income for government hospitals reached its high in FFY07 of $1,850,234,257 and declined significantly in FFY08 and FFY09 during the economic downturn.

As a group, the 669 proprietary hospitals studied achieved the highest net income from patient care services during the study period (see exhibit 1). They started with net income from patient care in FFY 2005 of positive $3,116,949,285 and net incomes from patient care remained positive in all periods studied, ending in FFY09 with a net income from patient care services of positive $4,288,083,795. The proprietary hospitals experienced the lowest average annual rate of increase in net revenue from patient care services (6.2 percent), but did the best job of controlling the average annual rate of increase in total operating expenses (5.9 percent). Net income from non-patient care activities was not significant for proprietary hospitals in any of the years studied and did not have a material impact on their total net income, which remained positive for all years studied.

As a group, the 1,608 voluntary hospitals studied experienced a healthy average annual rate of increase in net revenue from patient care services (7.7 percent), but their revenue increases were offset by an almost equal average annual rate of increase in total operating expenses (7.6 percent) (see exhibit). (Insert exhibit 1 link, again) Voluntary hospitals started with net income from patient care in FFY 2005 of -$2,399,531,581 and net incomes from patient care remained negative in all periods studied, ending in FFY09 with net income from patient care services of -$1,755,007,841. The voluntary hospitals were able to maintain the highest levels of net income from non-patient-care activities reaching a high in FFY07 of $19,991,420,350 but declining in FFY08 to $17,973,106,647 and sharply declining in FFY09 to $2,575,018,064. This allowed voluntary hospitals to enjoy positive total net incomes in all periods studied, but total net income dwindled to a very low level in FFY09 ($820,010,223) compared with the billion dollar levels of the previous four years.

Government Hospitals: Losers Versus Winners

For purposes of this study, "losers" were defined as hospitals with negative net income from patient care services. Conversely, "winners" were defined as hospital with positive net income from patient care services. The study found that there were roughly three times as many government hospital losers as there were winners (see exhibit 2).

The losers were able to increase net revenue from patient care services on average 6.7 percent per year during the years studied. However, the losers were not able to control cost increases relative to net revenue increases. Their total operating expenses increased on average 7.5 percent per year. This resulted in net income from patient care services declining from negative -$6,341,840,053 in FFY05 to -$9,143,152,513 in FFY09. The loser hospitals were able to generate significant net income from non-patient-care activities during the study period, but not enough to cover patient care losses except in FFY06. As a result, total net incomes declined significantly for the loser hospitals, from -$492,119,724 in FFY05 to -$1,117,076,602 in FFY09.

The winners had a much higher annual average increase in net revenue from patient care services (11.2 percent) compared with the loser hospitals (6.7 percent). Similarly, the winners had a much higher rate of increase in total operating expenses (10.6 percent) than the loser hospitals (7.5 percent). But the winners were able to keep cost increases lower than revenue increases, resulting in net income from patient care services rising from $806,930,439 in FFY05 to $1,465,995,881 in FFY09. Net income from non-patient-care activities was relatively strong in the first four years of the study period for the winners, but dropped off significantly in FFY09 to -$406,989,140. However, the winners were able to maintain positive total net income for all years studied, even FFY09.

Proprietary Hospitals: Losers Versus Winners

The study found that there were roughly two times as many proprietary hospital winners as there were losers (see exhibit 3). Not surprising, the winners were able to keep the average increases in total operating expenses (5.3 percent) below their average increases in net revenue from patient care services (5.8 percent), which resulted in healthy positive net incomes from patient care services in all of the years studied.

Total operating expenses for the losers increased on average 7.2 percent per year at roughly the same pace as average increases in net revenue from patient care of 7.2 percent. But because the losers started the study period with net income from patient care of -$1,008,092,278 in FFY05, their net income from patient care services remained negative for the entire study period.

Oddly, the losers were able to maintain positive net income from non-patient-care activities during the entire study period while the winners experienced negative net incomes from non-patient-care activities. Nevertheless, the losers experienced negative total net incomes during all years studied while the winners achieved positive total net income for all years studied.

Voluntary Hospitals: Losers Versus Winners

The study found that a little more than half of the voluntary hospitals studied were losers while just under half were winners (see exhibit 4). Again not surprising, the winners were able to keep the average increases in total operating expenses (6.8 percent) below their average increases in net revenue from patient care services (7.4 percent), which resulted in healthy positive net incomes from patient care services in all of the years studied. The winners also maintained strong net income from non-patient-care activities during most of the study period and were able to maintain healthy total net incomes for all years, even in FFY09 when net income from non-patient-care activities dropped off severely to -$4,055,807,586.

Total operating expenses for the losers increased on average 8.2 percent per year while their average increases in net revenue from patient care services was only 8.0 percent. This resulted in very unhealthy negative net incomes from patient care services for all years studied. Fortunately the losers were able to maintain significant and positive double-digit billion dollar net incomes from non-patient-care activities during all of the years studied except FFY09. As a result, total net incomes for the losers remained positive for all of the years studied except FFY09. In FFY09, the losers experienced net income from patient care services of -$12,370,474,232. But with only $6,630,825,650 of net income from non-patient-care services to offset the patient care losses, total net income for the losers was -$5,739,648,582 for that year.


Thomas M. Schuhmann, JD, CPA, is senior vice president, finance, Cost Report Data Resources, LLC, Louisville, Ky. (tschuhmann@costreportdata.com).

Publication Date: Saturday, May 01, 2010

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