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​Some nonprofit hospitals are among the most profitable

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CHICAGO - Seven of the 10 most profitable U.S. hospitals are nonprofits, according to new research, including one in Urbana, Illinois, where hospital tax exemptions are headed for a contentious court battle that soon could determine whether medical facilities are paying their fair share of taxes.

The "Top 10" list accompanies a study published Monday in the journal Health Affairs. The analysis is based on federal data from 2013 on nearly 3,000 hospitals. The authors measured profits using net income from patient care services, disregarding other income such as investments, donations and tuition. Researchers say the measure reflects how hospitals fare from their core work, without income from other activities.

The research comes as cities in New Jersey, Michigan and Wisconsin also wage battles over hospital tax breaks. Officials are scraping for revenue and pressuring hospitals to either pay up or justify their tax-exempt status.

So, who's making money, and how? According to the study, delivering patient care was a money-loser for 55 percent of hospitals in the year studied. About a third made some money -- up to $1,000 -- per patient. And a small group -- about 12 percent of the total -- made profits of more than $1,000 per discharged patient from payments by insurers, government and patients themselves.

The highly profitable hospitals were mostly for-profit corporations, such as Medical City Dallas Hospital in Texas and Swedish Medical Center in Englewood, Colorado.

But money-making hospitals also include nonprofits such as the Carle Foundation Hospital in Illinois, where a state appeals court in January ruled a state law allowing hospitals to avoid taxes is unconstitutional. The Illinois Supreme Court is expected to review the decision, on appeal by Carle Foundation Hospital.

Urbana Mayor Laurel Prussing said her city lost 11 percent of its assessed tax value when Carle stopped paying $6.5 million a year in property taxes -- the majority of which went to Urbana and its school district.

"We need to question this whole idea of what not-for-profit means," Prussing said. "This is a highly profitable business that manages to not pay taxes."

Carle Foundation Hospital spokeswoman Jennifer Hendricks-Kaufmann said the research "considers only one year and omits important details" like systemwide expenses and one-time government payments. The hospital provided $25.8 million in charity care in 2013, she said.

"A positive bottom line does not mean a hospital does not deserve tax-exempt status," said Danny Chun of the Illinois Hospital Association. Nonprofits reinvest net income into "the latest technology, newer equipment, modern facilities, highly trained staff and other programs that ensure access to quality health care services and benefit the health of their community."

Taxation would force hospitals operating on thin margins to reduce services, lay off staff and delay the purchase of equipment or facility upgrades, Chun said.

Hospital care is nearly a third of all U.S. health care spending -- the largest share of all categories -- and it increased by 4 percent from 2013 to 2014 to reach $972 billion. That's why it's important to understand which hospitals make money and how public policy affects them, said study co-author Ge Bai of Washington and Lee University in Lexington, Virginia.

In the study, hospitals affiliated with larger health care systems and those with less competition in their markets fared better on profitability. Consumers "should be skeptical of hospital consolidation," Bai said. "It may mean hospitals can be more efficient and have higher quality. But it almost always means they're going to negotiate higher prices with private insurers."

The new study, along with other recent research showing hospital price variation around the country, may put more public pressure on hospitals to help lower the growth of health care spending, said Craig Garthwaite of Northwestern University's Kellogg School of Management.

"Hospitals have gotten a bit of a free pass when we talk about health care spending," Garthwaite said.

Hospitals are treating fewer uninsured patients because of the expansion of coverage under President Barack Obama's health care overhaul, "but the value of their tax benefit has not changed," Garthwaite said. "I'd like a more careful accounting of how hospitals are going to reallocate their community-benefit spending."

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