CRC Memorandum

In Brief

• Michigan hospitals taken together showed revenues from all sources exceeding expenses resulting in surpluses of $863.0 million in 1998 and $635.4 million in 2000 (6.3 percent of net patient revenues for 1998 and 4.5 percent in 2000). Of the 150 hospitals covered in this report (see About the Data below), 65 showed a surplus in net income from patient care in 1998 while 45 did so in 2000.
• Financial results for individual hospitals ranged from surpluses of $173.0 million (1998) and $318.0 million (2000) to deficits of $91.1 million (2000) and $72.5 million (1998).
• By and large, reimbursements for inpatient and outpatient care do not cover the costs of providing that care.
• With the addition of income from other sources, including contributions and investments, 119 of the 150 hospitals showed surpluses in 1998 and 101 in 2000.
• All health systems areas (see Map 1) experienced overall surpluses in each year in the aggregate.
• The City of Detroit health sub-area of the southeast area, showed deficits each year ($18.2 million in 1998 and $55.9 million in 2000).

Summary Financial Results

Summary financial results of Michigan hospitals for fiscal years ending in 1998 and 2000 are shown in Table 1:

Table 1
Summary Finances of Michigan Hospitals:
Fiscal Years ending in 1998 and 2000

Definitions

Cost reports and supplemental data are reviewed by the state to assure agreement with the financial statements for each institution as stated by the hospital's independent auditor. Definitions are consistent with generally accepted accounting principles (GAAP). At a summary level they are:

Inpatient Income. The total amount received or carried as accounts receivable as a result of billings for services related to the provision of inpatient care during the fiscal year. Among items included are room and meals, operating room, laboratory tests, medical supplies, drugs, and the like.

Outpatient Income. This is the same as above but for outpatient care including outpatient surgery.

Contractual Allowances and Discounts. Hospitals agree to accept payment amounts that are less than charges from some third party payers such as Blue Cross/Blue Shield, Medicare, Medicaid, managed care organizations and private insurance companies. When done as a result of a formal contract or agreement the amounts are recorded as a contractual allowance. Other billings for less than usual and customary charges are recorded as discounts.

Net Patient Revenue. The sum of inpatient and outpatient revenue less contractual allowances and discounts.

Total Operating Expenses. The total of expenses recorded in providing care for both inpatient and outpatient services.

All Other Expenses. The costs of all expenses not related to patient care are recorded in this category and include such things as parking, gift shop and cafeteria, fund raising and investment management.

All Other Income. Income for the categories included in other expenses. During the 1998-2000 period investment income was an important component of the overall positive results.

Surplus/Deficit. Virtually all Michigan hospitals are not-for-profit organizations and year-end financial results are classified as a surplus or deficit rather than a profit or loss.

Hospital Specific Data

Results for 151 individual hospitals are shown below. Hospitals are those with a unique Medicare and Medicaid identification number. In some cases, separate facility locations are included in the data of the legal entity with the unique identifier.

Table 2
Summary of Individual Michigan Hospital:
Fiscal Years ending in 1998 and 2000

Income from Patient Services

The majority of hospitals in Michigan are losing money caring for patients. In total, hospital deficits from providing patient services, both inpatient and outpatient, grew from ($355.4) million in 1998 to ($821.8) million in 2000.

In 1998, 65 hospitals showed surpluses from net patient services income totaling $197.5 million while 85 hospitals had deficits totaling $552.9 million. In 2000, 45 hospitals had surpluses in net patient services income of $107.3 million and 105 hospitals had deficits totaling $929.1 million.

Income from Non-patient Related Activities

The addition of income and expenses not directly related to patient care improves the overall picture. This is because many hospitals had significant income from contributions, investments and other income producing activities in 1998 and 2000.

The combination of "Net Income from Services to Patients" and "Total Other Income and Expense" results in the overall surplus or deficit for each hospital in Table 2.

Table 3
Income and Expense Data by Individual Michigan Hospitals:
Fiscal Years ending in 1998 and 2000

Affiliated Hospitals

Forty-eight hospitals are formally affiliated with another organizational entity (see Table 2). The total net patient income, total other income and expense and surplus (deficit) for the hospitals of these systems included in this Memorandum are shown in Table 4.

Table 4
Summary Finances of Affiliated Michigan Hospitals:
Fiscal Years ending in 1998 and 2000

Health Systems Planning Areas

In the late 1960s, the state designated 8 health systems planning areas (See Map 1). Table 5 reflects financial data for these areas with the City of Detroit separated from the southeast area. With the exception of the City of Detroit, each area reflects an overall surplus for its hospitals. Each area, including Detroit, shows a deficit from the provision of patient care in 2000 and a surplus from "Other Income and Expense" in both 1998 and 2000.

Individual hospitals sorted by health systems planning areas are shown in a table available on the website.

Table 5
Net Income from Services to Patients and Surplus(Deficit)
by Health System Areas: Fiscal Years ending in 1998 and 2000

Summary

While surpluses and deficits for individual Michigan hospitals varied significantly in 1998 and 2000, fewer hospitals realized surpluses in 2000 than in 1998. Further the total amount of surpluses for all hospitals dropped while revenues increased resulting in a lowered surplus as a percent of net patient revenue from 6.3 percent to 4.5 percent.

It is income from revenue sources other than patient care that permits many Michigan hospitals to remain financially viable. More than one-half of all hospitals lost money providing patient care in both 1998 and 2000.