Recent Report Says In 2010, Pierce County Hospitals Posted Profit Margins Of $1,000 More Per Patient Than State Average

Washington state’s largest consumer advocacy group, Washington Community Action Network, has released a report based on, among other things, analysis by Service Employees International Union (SEIU) Healthcare 1199NW claiming that Pierce County’s two biggest hospitals recorded a profit margin in 2010 that was $1,000 more than the state average.

This graph, included in the report, compares the PPU rate of Pierce County with averages across Washington state as a whole and with other specific counties in 2010:

Yesterday, the Tacoma News Tribune ran an article that contained responses to the report from the two hospital groups in question, MultiCare Health System and Franciscan Health System:

MultiCare Health System:
MultiCare Health System responded in a statement Tuesday, saying that while it was still reviewing the analysis, it believes the report contains “considerable distortion of a limited set of inpatient hospital data.”

Franciscan Health System:
Franciscan Health System, in its statement, echoed those points and said the data analysis was done by a labor union with which it is in “protracted contract talks.”

The 16-page report includes four hypotheses explaining high hospital profits in Pierce County. However, immediately following the four explanations, the report states that of the first three, which form basis on data open to the public, none are conclusive explanations for high profit margins. The fourth explanation, suggesting the hospitals “post large profits simply by charging more than other hospitals for the same services,” is inconclusive because the would-be supporting data is not available to the public.

From page 10 of the report:

Explaining High Hospital Profits in Pierce County

What accounts for the unusually large operating profits of the Franciscan and MultiCare hospitals? Four possible explanations readily suggest themselves:

1. LOW EXPENSES – Perhaps it is the case that, while operating revenues at these hospitals are average, operating expenses are unusually low; the hospitals post large profits by holding down expenses.
2. HIGH VOLUMES – Perhaps it is the case that these hospitals treat an exceptionally large number of patients; the hospitals post large profits by providing a unusually large volume of services.
3. COMPLEX CASES – Perhaps it is the case that these hospitals treat patients with complex conditions that garner extra reimbursement from third-party payers; the hospitals post large profits by providing complex services for which the standard industry-wide charges are expected to be higher.
4. HIGH PRICES – Perhaps it is the case that these hospitals command higher prices than other hospitals for the services that they provide; the hospitals post large profits simply by charging more than other hospitals for the same services.

Hospitals in Washington state submit quite a lot of data about revenues, expenses, and volumes to the state Department of Health (DoH). Much of those data are available to the public. The analysis of those data shows that neither the first, the second, nor the third possible explanations canvassed above account for the high profits of Franciscan and MultiCare hospitals. Unfortunately, the data necessary to definitively confirm or disconfirm the fourth possible explanation are not available to the public.

The report concludes with, “neither differences in expenses, nor differences in volume of patients treated, nor differences in complexity of patients treated can account for the high profits,” and it notes that both Franciscan and MultiCare are nonprofit organizations, “not because they are healthcare organizations but, rather, because they are classified as charitable organizations,” and as such, beneficiaries of preferential tax treatment at state and federal levels.

The Tacoma News Tribune article written by Kathleen Cooper added the following:

Marce Edwards, MultiCare spokeswoman, said in the statement that the data report isn’t adequate to judge MultiCare’s community impact.

“MultiCare provides many other health care services, including home health and hospice, primary care and urgent care, behavioral health and more than 90 community services programs that are not reflected in these numbers,” she wrote.