PHOENIX — Arizona hospitals overall saw huge increases in their profits last year despite — or more likely because of — COVID-19.
New figures from the Arizona Health Care Cost Containment System said total profits topped $1.5 billion. That is 33% higher than 2019 and far more than anything reported in the past decade.
It also found nearly 75% of hospitals with a positive operating margin. While there have been higher figures in the past, that is still up 4.5 percentage points from the prior year.
The average profitability was $13.9 million.
Still, there are vast differences, even among hospitals under the same management.
Banner Desert Medical Center in Mesa, for example, posted a net operating profit of more than $153 million on total revenues in excess of $802 million for a net operating margin of 19.1%. Banner Thunderbird has a $96.7 million profit with a net operating profit of 16%.
But Banner University Medical Center in Tucson posted a nearly $5.5 million loss on revenues of more than $866 million. Still, the hospital is in a far better financial condition that 2019 when it lost almost $55 million.
All this comes against the backdrop of COVID.
During 2020, Gov. Doug Ducey imposed a ban on elective surgeries, at least in part to ensure that there was an adequate supply of personal protective equipment — masks, gowns and gloves — to handle the anticipated surge in the number of people hospitalized with the virus. That, however, drew some criticism from the Arizona Hospital and Healthcare Association.
Spokeswoman Holly Ward said her members were hemorrhaging money because they’ve lost the more financially lucrative business of procedures such as knee and hip replacements.
Then there was the cost of the personal protective equipment.
But Marjorie Baldwin, a professor of economics at the W.P. Carey School of Business at Arizona State University, said there is another side to this.
It starts, she said, with the change in the mix of patients.
“Typically, hospitals treat a majority of older patients on Medicare,’’ said Baldwin, who is a health economist. By contrast, COVID provided a larger mix of younger patients who might otherwise not be in a hospital.
The private insurance these patients often have pays more than Medicare.
Then there’s the fact that hospitals are not racking up the same losses for “uncompensated care,’’ bills not paid by people without government or private insurance and who lack the financial resources to pay their bills. That’s because the federal government agreed to pick up the cost for treating COVID for anyone without insurance.
“That’s a huge effect on profits,’’ Baldwin said.
On top of that there were various federal subsidies to hospitals to help deal with the costs incurred of treating COVID patients.
But potentially the biggest item has to do with medical billing and something called “diagnosis related groups,’’ or DRGs.
That system, already in use by Medicare, pays hospitals based on the DRG. That is designed to standardize payments and encourage cost containment as a hospital knows it will be getting a specific set amount to treat a specific ailment, not more.
Someone admitted for a ruptured appendix is in one DRG, versus a woman undergoing standard labor.
Baldwin said if a patient is diagnosed with COVID, there is a surcharge hospitals are allowed to impose.
It’s even more complex.
That surcharge is built on the assumption that COVID patients will require a certain level of care.
“But some COVID patients might not require ICU care or the intense care that the subsidy was designed to cover,’’ she said. “And so hospitals could make a profit on those patients.’’
Baldwin said a patient who tests positive for COVID actually might be admitted to the hospital for some other reason.
“But the hospital could still put that they have the COVID diagnosis and get the reimbursement,’’ she said. “And there’s strong incentives for hospitals to do that.’’
There are other things that have happened on the state level, even before COVID, that have worked to improve the bottom lines of hospitals.
As governor, Jan Brewer pushed through a measure to expand eligibility for AHCCCS, the state’s Medicaid program. She came up with a scheme to pay for it through a tax on hospitals.
It was structured so that each hospital chain would pay less in the assessment than the cost of having treat uninsured people unable to pay for services. So hospitals supported it.
It apparently worked.
In 2013 the average hospital had $8.9 million of uncompensated care, 6.7% of its total expenses. By 2020 that figure had dropped to $4.3 million, or 2.5%.
Ducey, state treasurer at the time with his eyes on the governor’s office, campaigned against AHCCCS expansion.
But now, with it in place, he actually expanded on Brewer’s funding method, signing legislation last year to create the Health Care Investment Fund. That is a totally new assessment that, after all is said and done, will mean a $900 million net increase for hospitals in 2021.
Baldwin said large urban hospitals already were in a better position to deal with COVID.
That is reflected in those numbers for Banner Health, the largest hospital system in the state, and, specifically, in its larger facilities.
A spokeswoman for Banner said staffers were still reviewing the numbers and declined to immediately comment on the report.
There was a similar pattern at Tucson Medical Center, where its $34.2 million profit on $613.2 million in income is a $6.7 million increase over the prior year.
Hospital spokeswoman Angela Pittenger cited some of the same issues Baldwin did.
“The reduction of elective surgeries created a significant negative impact on our hospital’s operating margin,’’ she said. Without the federal aid, Pittenger said, 2020 “would have been financially devastating’’ to the hospital.
Those additional dollars, she said, bolstered the hospital’s bottom line and positioned it to invest in staff and other resources.
Pittenger also cited the Health Care Investment Fund, which began in October 2020.
Baldwin said that some smaller “safety net’’ hospitals were not doing as well.
Copper Queen Community Hospital in Bisbee did manage to post a profit of nearly $657,000 on $42.6 million in income. But that profit is nearly $5.9 million less than the year before.
And Yavapai Regional Medical Center, found its profits shrinking by nearly $16.9 million between 2019 and 2020, though it still managed to post a $50.5 million profit on $372.7 million in income.