DFW Hospital Profitability Strong Despite Declining Occupancy

Dallas-Fort Worth hospitals earned more than $1.5 billion in 2011 despite a decline in inpatient occupancy, according a market report issued Monday.

DFW hospitals earned $1.584 billion, which represented 10.3 percent of net patient revenues of $14.015 billion, according to the Texas Health Market Review 2013. Minnesota-based analyst Allan Baumgarten, the report’s author, has published or contributed to state health market reports in 11 other states for more than a decade. Baumgarten said the local hospital margins are “very healthy” and well above that of other metropolitan areas.

Baylor Health Care System and HCA North Texas were the most profitable. Baylor earned slightly more than $600 million on about $3 billion of net patient revenue, or a margin of 17.6 percent. HCA had a 23.4 percent margin, earning $520 million on revenue of $2.211 billion. Texas Health Resources earned about $179 million on $3.089 billion in net patient revenue, which was a 5.6 percent margin.

The report said DFW added 500 more inpatient beds from 2008 to 2011. However, about 62 percent of those beds were full in 2011, compared with nearly 66 percent in 2008. Statewide, the number of inpatient days fell by 100,000 or 3 percent, in 2011 compared with 2009.

Baumgarten credited the hospital industry’s strong margins—despite declining inpatient occupancy—to hospital consolidation, which yields a stronger posture when negotiating rates with insurance companies and greater economies of scale on administrative overhead.

Baumgarten said there “is a real risk of significant overcapacity” if DFW hospitals continue to add beds while the occupancy rate continues to fall.

And Texas HMOs are experiencing a resurgence, thanks to government insurance programs. After years of decline, enrollment in Texas HMOs has increased by 10 percent in each of the last two years to a record of more than 4 million. While enrollment in employer HMO plans has dropped to half a million, enrollment in HMOs contracting for Medicaid and the Children’s Health Insurance Program has grown to more than 3 million. More than half a million Texas seniors are now in HMO plans. Medicare Advantage HMO plans have also enjoyed double-digit enrollment growth and have been the most profitable line of business for HMOs, the report said.

Compared with other Texas metropolitan areas, DFW HMO penetration is low. Locally, HMO penetration is 13.3 percent, compared with 22.5 percent in San Antonio and 19 percent in Houston. The three largest HMOs in DFW are AmeriGroup with an enrollment of about 383,000 members, Parkland Community with about 204,000, and UnitedHealthcare with about 118,000.

Baumgarten said Medicare HMO penetration is lower locally and DFW employers largely have abandoned the model.

Texas Medicaid plans overall lost $74.3 million on their operations in 2012.Four HMOs – Superior Health Plan, Molina Healthcare, UnitedHealthcare Community Plan and Community Health Choice – had combined operating losses of $161 million. However, Parkland Community Health Plan and Cook Children’s Health Plan were strongly profitable.

Baumgarten said Texas continues to expand its use of managed care for aged and disabled Medicaid recipients, creating a significant business opportunity for HMOs. However, the state is not expecting to expand Medicaid eligibility under the Affordable Care Act. He said he expects continued growth in Medicare HMOs and a reversal in the 12-year decline of commercial HMOs because of the health insurance exchanges. He said insurers such as Molina Healthcare and Superior Health Plan are selling plans on the exchanges using their HMOs.

Steve Jacob is editor-at-large of D Healthcare Daily and author of the book Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Skyrocketing Costs Are Taking Us. He can be reached at steve.jacob@dmagazine.com.