NEW YORK, NY / Forbes.com / Healthcare / August 31, 2010
America's Most Profitable Hospitals
By David Whelan
Some hospitals make colossal profits. Are they running a tight ship--or using monopoly power to overcharge patients? It's not a discussion hospitals want to have.
The average American hospital barely breaks even. But some are enormous profit centers. Forbes' first-ever survey of America's most profitable hospitals reveals that some American hospitals make 25 cents or more for every $1 in patient revenue they take in.
Our list, done by the American Hospital Directory, is based on operating income figures that hospitals must report to the federal Medicare program each year. It found that 24 hospitals in the country with over 200 beds make an operating margin of 25% or more. That kind of profit margin compares favorably to drug giants like Pfizer ( PFE - news - people ), who are often vilified for charging too much for their drugs. It easily beats the operating profit margin that General Electric ( GE - news - people ) reported last year.
The most profitable hospital in the country, 235-bed Flowers Medical Center in Dothan, Ala., recorded an incredible 53% operating margin. It is part of the big for-profit Community Health Systems ( CYH - news - people ) chain in Brentwood, Tenn. Del Sol Medical Center in El Paso snared second place with an astronomical 45% operating margin. It's part of the big HCA chain, based in Nashville. Neither hospital returned calls asking for comment. After this story came out, Flowers Hospital disputed the figures in an e-mail. It says it overstated its revenue by an astonishing $180 million in its official report to Medicare and that its actual margin is 12%.
Not surprisingly, a disproportionate 15 of 25 hospitals on our list were part of for-profit chains. HCA had 10 other hospitals in the top 25, including Medical City Hospital in Dallas, with a 26% operating margin; it is expected to do an initial public offering soon. But some big nonprofits also made the list, including both of Mayo Clinic's main hospitals and Ohio State University's hospital.
For an in-depth look at America's Most Profitable Hospitals, click here.
Some say profitable hospitals may be using local monopoly to overcharge insurers and patients. Others see the high profits simply as sign of efficiency and good quality.
The question is important because hospital charges represent about a third of total health care spending--$718 billion altogether. It's more than what's spent on doctors, drugs, nursing homes or any other category-type of care. Hospitals have been quietly consolidating in recent years. Now many hospital "systems" dominate their regional markets, often allowing them to dictate prices to insurers who pay the bill.
"Profitability can be as simple as being in a protected market [with little competition] and having lots of privately insured patients," says Michael Millenson, a consultant with Health Quality Advisors in Highland Park, Ill. Private insurance usually pays more than the federal Medicare program.
In an industry where four in five facilities are nonprofit charities, those that do run a profit draw scrutiny from policymakers, HMOs and local communities. Hospitals have been accused of excessive charges, discriminating against uninsured or underinsured patients and acting like monopolies by controlling a specific market. Even acknowledging profitability is taboo at many facilities.
There's another school of thought, however, that says that hospitals that are well-run financially are often those that are producing the best clinical outcomes.
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