Hospital Financial Analysis

The following analysis is based on financial records that were submitted by all hospitals in California to the Office of Statewide Health Planning and Development (OSHPD). The OSHPD has a complete set of financial and utilization records for every hospital in California going back to 1976. What’s more, they also post a composite analyses for all California hospital finances each year since 1995. Although the OSHPD has only the financial records for California hospitals, it’s the single most comprehensive source for U.S. hospital financial and utilization data I could find.

Other national sources of of hospital financial and utilization data include the Centers for Medicare and Medicaid Services (CMS) which has cost report data on all U.S. hospitals going back to 1996 and the American Hospital Association (AHA) which provides composite census and financial data for U.S. hospitals going back to 1981. In general, national trends reflected in these data bases correspond to the hospital financial and census trends that have occurred in California during this time.

Billing and Reimbursement

Previous sections have shown that hospitals usually bill far more than what they expect in payments from any of the insurance providers. The following graphs show how much hospitals over-bill, on average, and how over-billing has evolved over the last few decades.

Figure 1: Hospital billing charges (gross patient revenues) for all medical services provided by all California hospitals along with actual payments on those bills (net patient revenues) by all payers from 2001-2016. This figure shows that, on average, hospital billing charges were about three times the total payments on those charges in 2001. By 2016 hospital billing charges averaged four times the expected payments.

Figure 2: Hospital billing charges began growing far faster than payments in the late 70’s. In 1978, hospital bills in California exceeded the payments on those bills by an average of only about 15%. By 2016, billing charges were more than 300% over payments for all hospital bills.

Figure 3: Adjustments are the discounts Medicare, MediCal (California’s Medicaid) and the private insurance companies get from hospitals off the billing charges. In 1995, these discounts averaged just over 50%. They averaged more than 70% by 2016.

Figure 4: Hospitals also lose a small amount each year from uncompensated care. The types of uncompensated care are charity, in which a hospital forgives all the billing charges voluntarily, and bad debt, when a hospital can’t collect on a bill from any payer. Uncompensated care amounted to an average of less than four percent of billed charges for California hospitals in any year since 1995. In 2015 and 2016 California hospitals lost less than two percent of what they billed to uncompensated care

Figure 5: In spite of the fact that California hospitals don’t collect most of what they bill, their profits, on average are quite robust. Profit margins for California hospitals have averaged about five percent each year since 1995, though not all hospitals are profiting each year and some years have definitely been better than others for these hospitals. Also, roughly 90% of California’s hospitals are non-profit.

Payer Differential

The average discount or “adjustment” the different payers (private insurance vs. Medicare or MediCal) get have varied considerably in recent years. The following graphs show these differences.

Figure 6: Medicare and MediCal payments to hospitals have not grown nearly as fast as hospital billing charges. Medicare and MediCal paid just over 30% of what they were billed by California hospitals in 2001. By 2016 they were paying less than 20% of these billing charges.

Figure 7: Private health insurance payments, on the other hand, have kept largely in step with hospital billing charges since 2001. Private health insurance companies have consistently paid an average of 36-37% of what California hospitals have billed them since at least 2001.

Figure 8: Unlike Medicare or MediCal, private insurance companies have paid nearly a fixed portion of what they’re billed by hospitals for most of the last two decades.

The following three figure show just how much private health insurance companies have been overpaying California hospitals in recent years. Keep in mind, Medicare covers the elderly and disabled and MediCal covers the impoverished and the disabled whereas private health insurance usually covers the young and employed. It makes very little sense to think that privately insured people would be more expensive to treat than Medicare or MediCal recipients.

Figure 9: Average Medicare, MediCal and private insurance payments each year for each patient admitted to a California hospital since 1995.

Figure 10: Average Medicare, MediCal and private insurance payments each year for each day a patient spent in a California hospital since 1995.

Figure 11: Average Medicare, MediCal and private insurance payments each year for each outpatient visit to a California hospital since 1995.