Low-Cost California Hospitals Generate Higher Profits, Survey Finds
Low-cost hospitals in California generate less revenue than higher-cost providers but often are more profitable, according to a survey by consulting firm Cleverley & Associates, Payers & Providers reports.
The findings were presented Tuesday during the Healthcare Financial Management Association's annual conference.
Details of Survey
The survey included 74 non-teaching California hospitals that had annual revenues of between $100 million and $300 million.
- 2012 Medicare cost reports; and
- Data from the state Office of Statewide Health Planning and Development.
Overall, the survey found that low-cost hospitals were more aggressive in controlling their costs than high-cost hospitals.
Specifically, the survey found that net patient revenue per discharge averaged $11,257 at higher-cost facilities, compared with $9,753 at lower-cost facilities. However, low-cost hospitals still had an average profit margin of 4.7%, compared with a 1.6% deficit at higher-cost facilities.
In addition, researchers found that low-cost hospitals:
- Paid their full-time employees an average of about $7,000 less than high-cost hospitals;
- Spent about 27% less on pharmacy services than higher-cost hospitals;
- Spent about 25% less on employee benefits than high-cost hospitals;
- Spent about 10% less on supplies than higher-cost hospitals; and
- Spent significantly less on administrative costs than higher-cost hospitals.
Cleverley CEO William Cleverley noted that decreasing reimbursement from both Medicare and private payers likely will prompt hospitals to find ways to improve negative margins other than raising revenues.
He added, "We have reached the point where, basically, the revenue machine is tapped out" (Payers & Providers, 6/26).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.