Wednesday, July 21, 2010

The Tennessee Dept of Health publishes Joint Annual Reports, which include detailed financial data of all state hospitals which include revenue broken out by method of payment. The documents include both the initial charges (similar to a sticker price, nobody pays these amounts) and the adjusted charges. By comparing the total operating costs of the hospital to total charges, we can deduce the rough point at which the adjusted charges must be at for the hospital to break even. Since the data includes both initial and adjusted charges, we can therefore calculate the rough profit margin by insurance type.

There are a few caveats to these numbers. I assume the break even point is the same for all charges and procedures, with is certainly not the case. I don't adjust for the variance of procedure type with the patient population in each payment group. I also ignore both capital deprecation and debt. The result is that these numbers should be taken as rough order of magnitude estimates, and are not exact numbers.

Vanderbilt Medical Center, a well known research university hospital, is compared with Centennial, a community hospital, and the publicly funded Nashville General all less than three miles from each other. Vanderbilt and Centennial earn more 95% of their funding from patient fees, while Nashville General receives slightly over 50% of its operating revenue from state and local government.

Profit MarginsNashville GeneralVanderbiltCentennial
Medicare Inpatient 5% 4% -0.4%
Medicare Outpatient -42% -31% -33%
Medicaid/TennCare IP -49% -43% -4.5%
Medicaid/TennCare OP -57% -22% -41%
Self Pay -95% -61% -73%
Private Insurance -10% 32% 63%

Applying Mickey Kaus's first rule of journalism, we can make some tentative statements. Across the board, Medicare inpatient reimbursement rates barely cover the cost of treatment. At hospitals without external funding, the cost of all other government-insured and non-insured patients are subsidized in their entirety by private insurance. The disparity in the profit margins for insured individuals between Nashville General and the other two indicates that there are insurance plans out there which don't cover the cost of care, and therefore are unlikely to be accepted for outpatient and non-critical treatment.

The health care reform act covers half of the uninsured by simply raising the threshold for Medicaid-- an insurance plan which covers barely half of the actual cost of care. By shifting these patients from uninsured to Medicaid, hospitals will lose slightly less money on them, but the question is how much will having insurance lead these patients to simply consume more? This also ignores the real question of the effectiveness of Medicaid in improving health outcomes. Shifting the costs of uninsured onto private insurers brings up the very real concern that business may simply drop coverage for their employees, exacerbating the cost spiral.

Full spreadsheet here with data and computations.
Copyright © Swing Right Rudie
A notebook to myself