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Profits, charity care and quality are on the rise among many St. Louis area hospitals

St. Louis Beacon graphic | 2013

This article originally appeared in the St. Louis Beacon, Aug. 16, 2013: There is still room for improvement, but financial penalties have turned out to be a powerful tool for persuading area hospitals to boost quality and safety.

Under the health reform law, the Centers for Medicare and Medicaid Services has begun subjecting hospitals to losses of up to 1 percent of their inpatient payments for Medicare services for having higher than acceptable 30-day readmission rates for heart attacks, heart failure and pneumonia.

According to a report by the St. Louis Business Health Coalition, five hospitals in the region had lower than average readmissions rates and avoided penalties. They were:

The BHC report added that 15 of the region’s 23 hospitals reported improvements, based on the most recent data on 30-day heart attack readmissions.
The five area hospitals receiving the largest penalties or payment reductions were:

The report didn’t indicate the dollar amount of the penalties, but the Centers for Medicare and Medicaid Services, or CMS, has said penalties nationwide would amount to a loss of $280 million to hospitals.
In addition, the agency is making some payments to hospitals on the basis of what’s called "value-based purchasing": Hospitals that improve over time and perform better in relation to their peers can receive bonuses.

The bonuses and penalties were based on whether the hospitals followed recommended care procedures for heart attack, heart failure and pneumonia -- as well as whether the hospitals followed required procedures to prevent surgical infections. Based on that system, 16 hospitals got small bonuses and 11 were penalized. The list is contained in the BHC’s report. CMS now allows consumers to go to a website and compare hospitals' performances.

Reducing readmissions is important, the BHC’s report says, because they cost taxpayers roughly $15 billion in extra health-care costs, and much of that is thought to be avoidable.

Karen Roth, director of research for BHC, notes that the CMS penalties will rise to 2 percent in October of next year, and that Medicare intends to raise the bar by adding more medical conditions and procedures when calculating penalties.

Charity care, profits

The BHC’s report also shows that the level of charity care is rising in the St. Louis area. It increased to an average of 2.6 percent of operating revenue among area hospitals in 2011, up from 2.26 percent in 2010, the BHC report says. Roth suggested that some of the rise in 2011 was probably due to the recent recession as more workers lost their jobs and health benefits and couldn’t cover their medical expenses.

The BHC believes charity care below 3 percent of operating revenue is “perhaps not enough. We are beginning to see those amounts for many hospitals. That is definitely a big change from what we’ve seen in the past.”

Still, she says BHC is concerned by data showing charity care levels below 1 percent at Des Peres, Children’s and Glennon hospitals.

The hospital that stood out the most was Missouri Baptist in Sullivan. It reported spending 9.43 percent of its operating revenue on charity care, the highest among all hospitals in the region. By contrast, St. Louis Children’s reported spending 0.56 percent on charity care and Cardinal Glennon reported charity care spending of 0.64 percent. Those numbers may reflect the fact that Medicaid in Missouri covers poor children.

Overall, the St. Louis area hospital system remains in good financial health, the report says. The aggregate profit margin dropped but remains strong at 4.2 percent in 2011, the BHC report says. That translates into $337 million in profits in 2011, compared to $600 million in 2010.

The report says the drop was due to a couple of factors. One was a more refined federal payment system that recovered overpayments to hospitals from previous years. The other was a decrease in non-operating revenue from sources, such as losses on investments and losses resulting from physician practices acquired in recent years.

In exchange for paying no taxes, nonprofit hospitals are required to provide community benefits, such as caring for the uninsured or underinsured. How much profit these hospitals should be allowed to earn has been an issue in this decade. They have been criticized for pouring too much of their profit back into their systems and spending too little on care for the uninsured.

This is an issue in part because property tax revenue is an important source of income for local governments. Sparing hospitals from the tax can strain the ability of local governments to provide essential public services, such as education and public safety.

The question of whether hospitals provide sufficient community benefits to justify their tax exemptions has been the source of congressional hearings in recent years, and it has led to an IRS rule that streamlined reporting of specific community benefits by tax-exempt hospitals.

The BHC says the IRS rule helped shape the community benefit standards hospitals must now meet under the Affordable Care Act. Among other things, that standard requires hospitals to conduct community health need assessments every three years and explain how they intend to meet those needs. 

The BHC was set up by the area’s major employers who cover most of the health costs and benefits for their workers. It seeks to add more transparency to the health-care market by comparing health quality, costs and outcomes.

In many ways, the data BHC has compiled based on Medicare information does suggest that the health-reform law is prodding hospitals to do more to control cost.

“We are seeing some improvements,” Roth says. “That’s certainly clear from the value-based purchasing data and the readmissions data. I can’t say that the quality problem is fixed, but I feel that hospitals are motivated by CMS and its expectations by making some improvements.”

Robert Joiner has carved a niche in providing informed reporting about a range of medical issues. He won a Dennis A. Hunt Journalism Award for the Beacon’s "Worlds Apart" series on health-care disparities. His journalism experience includes working at the St. Louis American and the St. Louis Post-Dispatch, where he was a beat reporter, wire editor, editorial writer, columnist, and member of the Washington bureau.

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