The profitability of hospitals in southeast Wisconsin remained strong in 2016, according to a recently released report by Minnesota-based analyst Allan Baumgarten.
Hospitals in the Milwaukee region reported net income of $796.4 million in 2016, or 10.5 percent in net patient revenue, according to the Wisconsin Health Market Review 2017, Baumgarten’s 10th report examining the health care payer and provider markets in the state. Data in the report come from two annual surveys prepared by the Wisconsin Hospital Association.
Aurora Health Care was the most profitable, with net income of $404.4 million, or 16.2 percent of net patient revenue. That’s compared to Ascension Health’s net income of $96.6 million, or 4.6 percent of net patient revenue, and ProHealth Care’s net income of $10.9 million, or 7.5 percent of net patient revenue.
In comparison, hospitals in the Madison area had a net income of $211.9 million, or 7.3 percent of net patient revenues.
“From the data, the profitability of the hospitals in southeast Wisconsin has been very strong,” Baumgarten said. “The margins were the strongest in 2013, when the average margin for this group of hospitals in southeast Wisconsin was 12.3 percent. That’s not as high in 2016, but still the 10.5 percent as an average margin is a very strong result.”
Baumgarten said those margins in part reflect regional hospitals’ relatively high charges compared to other Midwestern metropolitan areas. He said consolidation of hospital systems over the past decade, which has increased their bargaining power with insurance companies, is partly to blame for driving up costs.
“With now two hospital systems having very close to 30 percent or more of the market share — as a general rule of thumb, I would say that once a system gets above 30 percent market share in its local market, that gives it considerable leverage when it comes to negotiating prices with commercial insurance companies,” he said.
Inpatient utilization among area hospitals, meanwhile, continues to decrease, according to the report.
In 2006, the number of inpatient hospital days for southeast Wisconsin hospitals was just under 1.2 million. That’s declined steadily to just over 1 million in 2016. On an average day, 60.2 percent of beds were occupied among southeast Wisconsin hospitals in 2016, compared to 61 percent in 2014.
Aurora is the exception to the trend, as it’s seen growth in inpatient days, thanks to the addition of hospitals in Grafton and Summit, Baumgarten said.
The overall decline in inpatient utilization can be traced back to the Great Recession, when many people either lost their benefits or saw their employers shift to high-deductible health plans, Baumgarten said. It also reflects a larger industry shift to outpatient care.
The percentage of inpatient days in southeast Wisconsin hospitals covered by Medicaid has grown from 19.7 percent in 2014 to 22.7 percent in 2016, according to the report.