This post has been updated.
Seven of the top 10 most profitable hospitals in the United States are nonprofit facilities that each netted more than $150 million from caring for patients in 2013, according to a study published Monday.
Topping the list is Gunderson Lutheran Medical Center in La Crosse, Wis., which earned $302.5 million in profit from patient-care services that year, according to researchers from the Johns Hopkins Bloomberg School of Public Health and Washington and Lee University.
Other nonprofits in the top 10 include the Stanford Hospital in Palo Alto, Calif., which took in nearly $225 million, and the University of Pennsylvania’s hospital in Philadelphia, which earned $184.5 million.
“Most hospitals lose money, but there are a few very profitable ones and we need to pay attention to why they are making so much” and how it affects consumers, said lead author Gerard Anderson, a Hopkins health policy professor.
In the study published in Health Affairs, Anderson and co-author Ge Bai, an assistant accounting professor at Washington and Lee, analyzed only net income for patient-care services for fiscal 2013, the most recent year for which data were available. They didn’t include profits that hospitals earn from other activities, such as donations, investments, parking fees, rental space and sales from gift shops, which often are used to subsidize patient care.
“All hospitals should make a little profit,” Bai said, “but some hospitals are obtaining outrageous profits.”
In a statement, Gundersen said the report does not reflect its costs as an integrated health system in a largely rural, multistate region with a large Medicare population. It said the data used by the authors excluded some administrative and other costs that would have changed the medical center’s ranking.
The study’s main purpose was to determine the characteristics of the nation’s most profitable hospitals. They found that facilities that were part of a system were more profitable because they were able to dominate their local market, which gives them greater clout in negotiating higher prices from private insurers. It also means consumers end up paying more if their health-care provider is out of network, Anderson said.
The hospitals with the highest price markups earned the largest profits. Anderson thinks they should lower their prices or plow more back into the communities.
“Mostly, the hospitals are able to charge more because they can, and they do,” he said. “There’s no need for nonprofit hospitals to earn substantial profits.”
Hospitals are among the largest property owners and employers in many communities. Those designated as nonprofits receive state and federal tax breaks for providing “charity care and community benefit.”
The value of tax breaks for nonprofit hospitals has doubled over the past decade, research shows, adding fuel to a longstanding debate on whether the facilities give back enough to the public. The report suggests that policymakers consider whether nonprofit hospitals should be required to invest profits in additional services or lower their prices to justify their tax-exempt status.
The authors analyzed Medicare data for about 3,000 acute care hospitals, of which 59 percent were nonprofit, 25 percent were for-profit and 16 percent were public. After adjusting for cost of living and the types of patients served, they found that more than half of all facilities lost money on patient-care services. Rural hospitals, small hospitals and major teaching hospitals tended to lose more money than urban hospitals and larger ones.
One limitation of the study is its look at a single year of data. Another is that in 2013, the federal government’s payments to hospitals were based mainly on volume. That system, known as fee for service, gives hospitals and doctors incentives to do more tests and procedures to earn money. Under the Affordable Care Act, hospital reimbursements are increasingly tied to the quality of care, not quantity.
Stanford, a major academic medical center that the authors ranked as the nation’s third-most-profitable hospital, said it primarily used its 2013 profit for capital projects. In addition, Stanford said its prices reflect the costs of treating patients with more complex needs in more advanced settings. This higher level of care “is simply more expensive to provide than what is available in a community hospital,” Stanford said in a statement.
The Hospital of the University of Pennsylvania, which is also part of an academic health system and medical school, said “excess revenue derived from clinical care” is used to subsidize initiatives across the organization. According to a spokeswoman, that includes supporting and improving critical programs such as its trauma center and neonatal intensive care units, as well as funding biomedical research, education and training at the university’s medical school.
Norton Hospital in Louisville, which is ranked fourth-most-profitable on the list, earned $211.2 million. A spokesman for Norton said the data used in the report does not include all operational costs and that its audited financial statements show it was a “virtual break-even” year.