ST. LOUIS HEALTH CARE INDUSTRY OVERVIEW. Volume 1: Hospital Quality and Financial Overview

Transcription

1 ST. LOUIS HEALTH CARE INDUSTRY OVERVIEW 202 Volume : Hospital Quality and Financial Overview

2 About the BHC and this Report Board of Directors Debbie Hanlon* ESCO Technologies Ed Keady* Schnuck Markets Marla Langenhorst* Ameren Ed Strouth* Barry-Wehmiller Cos, Inc. Carolyn Plummer* Monsanto Company Joe Sander* Laclede Gas Company Jan Bansch Emerson Beth Biggs Charter Communications Sandi Boller US Bank Patricia Canada St. Louis Public Schools Dolores Ennico Olin Corporation Kim Grbac Edward Jones Julie Nadolny Peabody Energy Barb Shepard The Doe Run Company Tim Sutter Brown Shoe Company Jeff White The Boeing Company Bob Knowles Ex-Officio Bob Wald Ex-Officio * BHC Foundation Executive Committee member BHC Staff Karen Roth, RN, MBA, CPA Author, Director of Research Louise Probst, RN, MBA Executive Director Mary Jo Condon, BJ, Senior Director, Partnerships and Projects Dave Heaton, BSBA, Product Manager Melissa Hogan, MPH, Senior Director, Health Improvement and Member Svc. Becky James, MSW, LCSW, Member Svc. and Education Manager Haley McCall, MPH, Information Svc. Manager Ruth Stewart, BS, Executive Assistant Melanie Watson, AAS, Operations Manager Mia Williams Medical Records Abstractor BHC Members Aegion Ameren Corporation American Railcar Industries, Inc. Anheuser-Busch InBev Arch Coal Barry-Wehmiller Cos, Inc. Bass Pro Shops Brown Shoe Company, Inc. BUNZL Distribution USA, Inc. Charter Communications City of St. Louis Drury Hotels Company, LLC Edward Jones Emerson Energizer Holdings, Inc. ESCO Technologies Global Brass & Copper, Inc. Graybar Electric Company, Inc. Laclede Gas Company Laird Technologies, Inc. Maines Paper & Food Svc, Inc. Metro Mississippi Lime Company Monsanto Company Olin Corporation Panera Parkway School District Peabody Energy Ralcorp Holdings, Inc. RockTenn Saint Louis County Saint Louis Public Schools Schnuck Markets, Inc. Shelter Insurance Sigma-Aldrich Corporation Solae Company Solutia, Inc. St. Louis Graphic Arts The Boeing Company The Doe Run Company TheBANK of Edwardsville Thermadyne Holdings Corp. US Bank Vi-Jon, Inc. Watlow Electric World Wide Technology, Inc. YRC Worldwide Inc. Sustaining Members Aon-Hewitt Buck Consultants Mercer Towers Watson & Co. Purchasing Partners University of Missouri About the BHC The St. Louis Area Business Health Coalition (BHC) represents leading St. Louis employers in their efforts to improve the health of their enrollees and enhance the overall value of their health benefit investments. BHC employers seek a transparent health care market where comparative information about quality, cost and outcomes is used to achieve high-quality, patient-centered, and affordable care for all people in the region. The BHC Foundation is a separate non-profit subsidiary organization to BHC. The BHC Foundation purpose is to provide pertinent health care information to the community. About this Report This report analyzes, summarizes, and presents information and trends on the St. Louis area hospital industry for fiscal year 200 with limited data for fiscal year 20. The report includes data from the following sources: Health Insights (QIO), Centers for Medicare and Medicaid Services (CMS) Medicare Cost Reports and Hospital Compare, audited hospital financial statements, the American Hospital Association (AHA) and Missouri Hospital Association (MHA) annual licensing surveys and Community Benefit data, the Missouri Department of Health and Senior Services (DHSS), and the Internal Revenue Service Form 990 Schedule H as well as additional information voluntarily submitted by providers. This report may be downloaded from the BHC website, at Data Limitation and Cautions BHC has made every effort to provide accurate information. Each hospital was given the opportunity to verify its financial and utilization data. As with any analysis of hospital industry data, a note of caution is recommended. BHC depends upon the accuracy of the data sources and cannot guarantee the complete accuracy of all the data in this report. For example, hospital data from Medicare Cost Reports may contain a level of error. In this case, data inaccuracies that may remain for individual hospitals would have minimal impact on weighted average values and virtually no impact on the overall conclusions regarding St. Louis hospital performance. Please read and become familiar with the technical discussion while reviewing or interpreting the data detailed in this report. Acknowledgments BHC would like to acknowledge the hospital representatives who voluntarily provided BHC with financial and utilization information. Hospital representatives and their staff worked extensively with BHC to verify the accuracy of the data. The additional time and effort spent analyzing and verifying the data was invaluable to the project s success. BHC wishes to acknowledge the following organizations that contributed to this report by providing certain data, analysis, recommendations or consultation: Health Insights (QIO), DHSS, and the Missouri Department of Social Services. BHC especially thanks its members and other St. Louis organizations that provided funding to the BHC Foundation to make this publication possible.

3 Table of Contents MESSAGE TO THE COMMUNITY SECTION ONE: QUALITY AND PATIENT SAFETY Hospital Compare Table: Hospital Compare, , Frequency St. Louis Hospitals Provide Recommended Care and National Rankings Putting the patient at the center of care Graph: St. Louis Area Hospitals HCAHPS Composite Score and National Percentile Ranking 200 Readmission reductions a quality and value priority Graph: St. Louis Area Hospitals Heart Attack 30-Day Readmission Rates CMS aligns financial incentives to eliminate infections Table: Central Line-Associated Bloodstream Infection by Hospital, By Intensive Care Unit Type, Rates per,000 Line-Days Table: Central Line-Associated Bloodstream Infection by Hospital, Medical/Surgical ICU, Rates per,000 Line-Days Frequency of heart surgeries and infections decline Graph: Coronary Artery Bypass Graft (CABG) Surgical Site Infection Rates per 00 Procedures, 200 Government will align rewards with patient safety Graph: Vascular Catheter-Associated Infections, Rate per,000 Discharges, October 2008 June 200 Patient safety ratings now available to consumers Graph: Agency for Healthcare Research and Quality (AHRQ) Patient Safety Indicator (PSI) 90 Composite, St. Louis Area Hospitals Rate per,000 Discharges, October 2008 June 200 SECTION TWO: FINANCIAL PERFORMANCE Aggregate Charges, Revenues, and Expenses Graph: Aggregate Charges, Revenues, and Expenses, St. Louis Area Hospital Industry, Shown in 200 Dollars Summary of Aggregate Financial Statements and Financial Indicators for St. Louis Area Hospitals, Profits robust despite difficult economy Graph: Total Profit Profile, St. Louis Area Hospital Industry, Individual hospital and system results Market dominance results in wide variation in payments Table: Medicare Losses, Operating Margins and Medicare Subsidies, St. Louis Hospitals, 200 Table: Contribution Margins for Medicare and Privately Insured Patients In Concentrated and Competitive Markets Operating margin trends, St. Louis Area Hospital Industry, Profit margin trends, St. Louis Area Hospital Industry, Excess beds decrease to lowest level in five years Graph: Excess Available Beds in 200 by Network Table: Inpatient Hospital Utilization Trends Public Sector Financing Hospitals charity and community benefit information now reported to the IRS Graph: Charity Care as a Percentage of Operating Revenue Charity care profile and Disproportionate share payment (DSH) by network Fiscal Year 20 Financial Data Technical Notes St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202

4 Message to the Community - Are we at a tipping point? U.S. health care spending rose less than 4% in 200, the slowest growth in the last 5 years according to the Centers for Medicare and Medicaid Services (CMS). Most of the slowdown was due to the recession as health coverage declined from high unemployment and consumers postponed medical care. Yet the slowdown was sharper than expected indicating other factors besides the recession may be responsible. Sustainability questioned Some health experts predict growth in health spending will pick up in the future as the population ages and health reform moves forward. Others are cautiously optimistic that efforts to slow spending over the last decade may have caused changes in consumer and provider behavior in ways that bend the cost curve. The implications of a sustained slowdown in cost growth could be enormous. The rising burden of health care costs is the central barrier to U.S. economic recovery and a drag on household incomes. If Medicare cost growth could be held to one percentage point faster than our country s economic growth per year, the projected long-term federal budget deficit would fall by more than one-third. Will the new CMS Hospital Value-Based Purchasing (VBP) Program help sustain the slowdown? The VBP program is finally moving forward and has the potential to be transformational in aligning incentives to improve quality and drive sustainable cost growth. After September 202, hospitals will be rewarded by CMS for how often they follow certain clinical best practices and achieve patient satisfaction (pgs. 3-4). In addition, hospitals with high rates of readmissions will be penalized (p. 5). In the St. Louis region, providers have already begun working in partnership with others to reduce readmissions communitywide. While patient safety measures were scheduled to be included in the VBP program in 204, CMS delayed implementation (pg. 8-9). To fulfill the promise of a value-driven health system and support needed economic recovery, employers must be fast followers of the CMS VBP program. The most recent moderation in medical cost growth was not shared equally. Employers, who continued to pay more for health care, had benefit increases on average of 6.9% in 200 according to Mercer s National Employer Survey. Large, self-insured employers experienced a much sharper increase of 8.5%. Using the VBP program as a model to align incentives could help drive improvements in quality and sustainable medical cost growth. Wage growth fell to a historic low as health benefit costs grew more than three times as fast as worker s earnings and overall inflation. Although workers may not realize it, rising medical costs have been a constant drain on their income that has effectively wiped out any gains earned over the last decade. 2 In a positive development, aggregate St. Louis hospital charges grew 3.% in 200, about the same as overall inflation, the slowest growth since 996 (p. 0). As hospital admissions and emergency department visits declined, expenses grew less than % and revenues were flat. Record profits In 200, profit margins at the nation s hospitals reached a record-breaking 7.2%, the highest in 30 years. Despite flat revenue growth, the aggregate profit margin at St. Louis hospitals reached 7.6%, the second highest in 5 years (p. 2). This success was not shared equally across hospitals in the region. If St. Louis hospitals are providing fewer services why are profits increasing? While one would hope this is the result of efficiency improvements, the data is unclear. Medicare losses increased again in 200 which some would suggest is an indicator of continuing inefficiency. In 2009, the Medicare Payment Advisory Commission (MedPAC) that sets Medicare payment rates for U.S. hospitals released a landmark study that found hospitals in more competitive markets were efficient enough to earn a profit on Medicare payments. The study also found that hospitals in the least competitive markets lacked the cost pressure over time to force efficiencies. They lost money on Medicare while realizing positive profits overall as a result of higher private sector payments (p. 2). Private payers have long known they pay more for health care services than government payers. Yet the MedPAC study raises an interesting question. Is too much or too little money the problem? Have insufficient Medicare payments been the problem or have on-going high payments from private payers enabled too much capital investment and related cost in some communities? A growing body of evidence supports MedPAC s findings. A new study released last year evaluated the profitability of procedures performed in hospitals located in competitive markets and also in markets where care was concentrated in only a few hospital systems. The study found that private insurance payments for procedures at hospitals in less competitive markets had a twofold higher profitability than hospitals in competitive markets (p. 4). Medicare losses in St. Louis were $95.6 million in 200 or about 2.9% of operating revenue. These studies suggest there is a tremendous opportunity to reduce costs if St. Louis hospitals focus on becoming efficient with Medicare. Non-profit hospitals are required to provide community benefit in exchange for not paying taxes. Charity care provided by St. Louis hospitals reached 2.29% in 200, up from.99% in 2009 as a result of the difficult economy. New IRS reports available this year provide more transparency on hospitals financial assistance policies and will provide more information on community benefit in the future. Considering the tax revenue forgone and severity of the fiscal crises that state and local governments face, this issue will continue to receive intense scrutiny. Our nation is at a crossroads. With the historic slowdown in medical costs in recent years, we have been given a choice. We can choose to sustain the momentum to truly achieve a value-driven health care system that is sustainable, allowing our country to achieve economic prosperity and provide quality health care for all. Or, we can revert back to the unsustainable path of escalating health care costs that drags down the economy and reduces the standard of living for all Americans. A Lowrey, In a Hopeful Sign, Health Spending is Flattening Out, New York Times, April 28, D Auerbach, A Kellerman, A Decade of Health Care Cost Growth Has Wiped Out Real Income Gains For An Average US Family, Health Affairs, September 20 30:9 2 St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

5 Section One: Quality and patient safety Hospital Improvements in Quality to be Rewarded by Medicare For the first time, Medicare s Hospital Value-Based Purchasing (VBP) program will pay incentives to hospitals based on how often they follow certain clinical best practices and satisfy patients. Incentives will reward hospital improvement over time and as compared to peers. Interestingly, Medicare reports the more than $850 million in incentives will be deducted from money previously spent on inpatient care. Incentives will be paid for discharges occurring after September 202. VBP bases 70% of the score on 2 Hospital Compare measures related to how often hospitals follow practices linked to better outcomes (shown in bold white type in the box below). Comparative performance of St. Louis hospitals on these and all other recommended care measures are listed in the table below. This information is provided by HealthInsights, a Medicare-certified, quality improvement organization. Patient experience, the second component of the VBP score, is discussed on the following page. In 200, performance fell for 7 of the 29 St. Louis hospitals listed. In aggregate, Hospital Compare recommended care scores for hospitals in the St. Louis region ranked in the 59th percentile nationally. While St. Louis hospitals scores are improving, hospitals nationally are improving their scores more quickly. BHC would like to congratulate Gateway Regional, St. Louis University, St. Clare and St. Joseph-West hospitals for achieving composite scores in the 80th percentile and above. Frequency (%) that St. Louis Hospitals Provide Recommended Care and National Performance Rankings: Jan. Dec. 200 Frequency of Recommended Care (Goal = 00%) National Performance Ranking Heart Heart Pneu- Surgical Nat l Nat l Hospital Attack Failure monia Infection Rank Rank Gateway Regional Med. Ctr. 00% 97% 99% 98% 90th 95th St. Louis University Hosp. 99% 99% 96% 98% 87th 76th St. Clare Health Center 99% 97% 96% 98% 83rd 63rd St. Joseph Hospital-West 98% 97% 97% 98% 83rd 8st St. Joseph Health Center 98% 97% 95% 98% 77th 83rd St. Mary s Health Center 00% 99% 94% 97% 75th 68th Mercy Hospital St. Louis 99% 96% 95% 98% 75th 67th Des Peres Hospital 99% 96% 98% 97% 74th 76th Barnes Jewish W. County 96% 94% 97% 98% 74th 64th Missouri Baptist Med. Ctr. 00% 96% 97% 97% 7st 78th Missouri Baptist Sullivan 00% 99% 97% 94% 7st 79th DePaul Health Center 98% 94% 96% 97% 70th 70th St. Joseph Hospital Breese 90% 96% 98% 97% 68th 49th Barnes-Jewish St. Peters 99% 99% 98% 95% 67th 60th Mercy Hospital Washington 97% 97% 95% 97% 62nd 8st Christian Hospital 99% 93% 96% 97% 56th 59th Anderson Hospital 97% 96% 96% 96% 54th 60th Memorial Hospital 99% 93% 97% 96% 53rd 76th Jefferson Regional Med. Ctr. 99% 97% 96% 94% 52nd 68th Alton Memorial 00% 93% 95% 96% 5st 54th Progress West HealthCare 00% 93% 97% 95% 50th 74th Barnes Jewish Hospital 99% 96% 92% 95% 49th 72nd St. Luke s Hospital 00% 97% 92% 95% 42nd 4st Saint Anthony s Health Ctr. 9% 9% 95% 96% 39th 43rd St. Elizabeth Hospital 99% 90% 94% 93% 34th 39th St. Anthony s Med. Ctr. 96% 79% 93% 93% 28th 38th Lincoln County Medical Ctr. N/A 9% 93% 90% 24th 2st St. Alexius Hospital 89% 88% 93% 89% 22nd 36th Touchette Regional Med. Ctr 92% 87% 9% 89% 8th 6th St. Louis Hospital Average 98% 94% 95% 96% 59th 6st Recommended Care Measures Heart Attack (Acute Myocardial Infarction or AMI) Aspirin at arrival Aspirin at discharge ACE Inhibitor for Left Ventricular Systolic Dysfunction (LVSD) Beta Blocker at discharge Thrombolytic agent within 30 minutes of arrival PCI within 90 minutes of arrival Smoking cessation advice Heart Failure Assessment of Left Ventricular Function (LVF) ACE Inhibitors for LVSD Discharge instructions Smoking cessation advice Pneumonia Initial Antibiotic Timing Pneumococcal Vaccination Influenza Vaccination Blood culture prior to first antibiotic received Smoking cessation advice Appropriate antibiotic Surgical Infection Prevention Antibiotic hour prior to surgical incision Antibiotics stopped within 24 hours after end of surgery Appropriate Antibiotic Glucose controlled for cardiac patients after surgery Appropriate hair removal Blood Clot Prevention Ordered Blood Clot Prevention Treatment Beta Blockers before & after surgery to designated patients Urinary catheter removed within 2 days after surgery Analysis Methodology The score for each clinical area (frequency of recommended care) represents the hospital s combined performance for all measures. To compute national rankings, each hospital s performance on each measure was ranked on a 0 scale (similar to grading each measure on a curve). An average rank was computed across all 26 measures for each hospital in contrast to the national comparison group and expressed as a percentile. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 3

6 Putting the patient at the center of care Consumers opinions about their care will soon be tied to hospitals reimbursement. As mentioned previously, Medicare s Hospital Value-Based Purchasing (VBP) program includes measures of patient satisfaction. VBP bases 30% of its incentive payments on eight measures of patient experience from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey (shown in bold white type in the box below). Similar to recommended care incentives, a hospital s score is based on improvement over time and how achievement compares to peers. Hospitals may earn additional points for maintaining patient satisfaction scores consistently above the peer average. In 200, performance improved for of the 29 St. Louis hospitals in the graph below. In aggregate, HCAHPS scores ranked in the 46th percentile nationally, down from the 52nd percentile in Despite St. Louis hospitals improvement, hospitals nationally improved at a faster rate, according to HealthInsights, which also provided these data. W St. Louis Area Hospitals HCAHPS Composite Score and National Percentile Ranking 200 St. Joseph s Hospital (Breese) Missouri Baptist Hospital - Sullivan St. Clare Health Center Alton Memorial Hospital Christian Hospitals Barnes-Jewish West County Barnes-Jewish St. Peters Progress West HealthCare Center St. Luke s Hospital Lincoln County Medical Center Mercy Hospital St. Louis St. Joseph Health Center Mercy Hospital Washington Memorial Hospital U.S. Average St. Louis Average Missouri Baptist Medical Center St. Joseph Hospital West Depaul Health Center St. Louis University Hospital St. Anthony s Health Center (Alton) St. Mary s Health Center Barnes-Jewish Hospital Des Peres Anderson Hospital Jefferson Regional Medical Center St. Anthony s Medical Center St. Alexius Hospital Gateway Regional Medical Center Touchette Regional Medical Center St. Elizabeth s Hospital 96th 86th 85th 8st 8st 79th 79th 76th 66th 59th 58th 55th 5st 5st 50th 46th 45th 43rd 43rd 42nd 4st 35th 34th 29th 26th 22nd 9th 7th 4th 8th 7th Source: HealthInsight CMS Quality Improvement Organization. Ranking is similar to the method used by HealthInsight for Hospital Compare process of care measures (see page 3). Patient Experience of Care (HCAHPS) Survey Questions Nurse Communication Doctor Communication Hospital Staff Responsiveness Pain Management Medication Communication Hospital Cleanliness & Quietness Discharge Information Overall Hospital Rating Patient Would Definitely Recommend Hospital W BHC congratulates St. Joseph Hospital of Breese for achieving the highest rank for patient satisfaction in St. Louis for the third year. Patient experience improvement may also reduce readmission rates, according to a recent study at Duke University. Researchers analyzed HCAHPS data paying particular attention to whether hospital staff asked patients if they received written information regarding health problems to look out for and would have help after leaving the hospital. Hospitals that scored highly on patient satisfaction with discharge planning tended to have the lowest readmission rates. In fact, patient satisfaction was more closely linked to lower readmission rates than recommended care measures. In the future, the VBP program will include readmission rates in a hospital s score. Improving patient satisfaction means changing hospital culture to focus on the patient as a customer. Yet, it is more than a guest relations program. Patient experience incorporates all aspects of the patient s interaction with the health care system including satisfaction, engagement, and the quality of care. Hospital leadership must emphasize how every person s job contributes to this goal. St. Louis hospitals are investing resources to improve patient experience. Memorial Hospital recently launched the SHHH (Silent Hospitals Help Healing) campaign, a program used by hospitals nationwide to reduce noise levels. Reducing noise can make a difference for patients. Loss of sleep can lead to high blood pressure, fatigue and depression, according to a University of Chicago study. 2 Boulding W, Glickman S, Manary M, Schulman K, Staelin R, Relationship Between Patient Satisfaction With Inpatient Care and Hospital Readmission Within 30 Days, Am J Manag Care. 20;7(): Bernhard B, Shhh! Belleville hospital trying to keep quiet, St. Louis Post-Dispatch, October 2, St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

7 Readmission reductions a quality and value priority High rates of readmissions across conditions were a major contributing factor to St. Louis scoring in the lowest quartile for potentially avoidable hospital use and cost in a March 202 report by the Commonwealth Fund. The report, which is described in more detail in the box below, used 2008 Medicare claims data analyzed by the Institute of Medicine. More recent data showing readmissions for Medicare patients finds St. Louis hospitals improving. Fourteen of the region s 23 hospitals 30-day heart attack readmission rates improved in the most recent Hospital Compare data. Despite this improvement, area hospitals do not seem to be gaining much ground on their peers nationally. Readmission rates for 5 of 23 hospitals in the region were worse than the national average, about the same as their previous performance. BHC would like to congratulate Christian, St. Luke s and St. Louis University hospitals for showing the greatest improvement. BHC also would like to congratulate Missouri Baptist Hospital Sullivan, Alton Memorial Hospital, Mercy Hospital Washington, Gateway Regional Medical Center and Des Peres Hospital for consistently showing performance better than the national average. St. Louis Area Hospitals Heart Attack 30-Day Readmission Rates, Missouri Baptist Hospital (Sullivan) Alton Memorial Hospital Mercy Hospital Washington Des Peres Hospital St. Luke s Hospital Mercy Hospital St. Louis Barnes-Jewish St. Peters Gateway Regional Medical Center National Average St. Louis University Hospital St. Elizabeth s Hospital Missouri Baptist Medical Center St. Louis Average Jefferson Regional Medical Center Memorial Hospital St. Anthony s Medical Center St. Clare Health Center St. Joseph Hospital West St. Mary s Health Center St. Joseph Health Center Anderson Hospital St. Anthony s Health Center (Alton) Depaul Health Center Christian Hospitals Barnes-Jewish Hospital 0% 8.5% 8.8% 9.3% 9.6% 9.7% 9.8% 9.8% 9.8% 9.8% 20.2% 20.2% 20.2% 20.7% 20.8% 2.2% 2.2% 2.4% 2.6% 2.6% 2.8% 2.9% 2.9% 22.2% 22.3% 22.4% 5% 0% 5% 20% 25% The Commonwealth Fund Scorecard on Local Health System Performance, 202 The Scorecard tracks 43 indicators spanning four dimensions of health system performance. St. Louis ranked in the 3rd quartile across indicators in the four dimensions: Access Quality Potentially Avoidable Hospital Use and Cost Health Outcomes According to Kaiser Health News, Barnes-Jewish Hospital was one of eight hospitals nationally to report among the worst readmission rates on all three health conditions Medicare tracks heart attack, heart failure and pneumonia. Source: Center for Medicare and Medicaid Services (CMS) Hospital Compare. Due to the low number of cases, the rates for Barnes-Jewish West County, Lincoln County Medical Center, Progress West HealthCare, St. Alexius, St. Joseph Breese, and Touchette Regional hospitals were not reported by Hospital Compare. Readmission rates are adjusted for illness severity. Payment reform targets preventable hospital readmissions to improve quality and reduce waste. After September 202, Medicare will penalize hospitals for higher than expected readmission rates for heart failure, pneumonia and heart attack. These conditions were chosen in part due to their high volumes, cost and readmission rates. Medicare could withhold up to % of a hospital s aggregate inpatient Medicare payments in the first year,.25% in the second and.5% in the third year. Penalties during the first year will be based on care provided from 2008 to 20. While the penalty is capped at %, it is assessed on all discharges, not just the conditions measured. On average, Medicare represents 42% of inpatient discharges at St. Louis hospitals so readmission penalties could add up quickly. Looming penalties have hospitals attention. Making progress, particularly in urban areas where readmission rates tend to be higher, may require strong community partnerships to improve patients health literacy and connections to resources. Several area hospitals, physicians and community partners are collaborating to ensure patients understand how to care for themselves when they leave the hospital and receive necessary follow-up care. Home health, meal delivery, and transportation to physician visits are among the services provided. A recent program by The Institute for Healthcare Improvement asks hospitals to interview readmitted patients and their families about their experiences after their initial discharge. The State Action on Avoidable Rehospitalizations (STAAR) program also focuses on communication among multidisciplinary groups of outpatient and inpatient clinicians and organizations. This knowledge helps a hospital and the entire care team understand where lapses in care occur so they can better collaborate and provide a more streamlined transition of care after discharge. The ultimate goal will be better integrated, coordinated and lower cost care. Ellis J, Razavi A, Reducing Hospital Readmissions with a STAAR Approach, Healthcare Finance News, October 3, 20. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 5

8 CMS aligns financial incentives to eliminate infections Hospital-acquired infections (HAI) are among the leading causes of death in the U.S. The Department of Health and Human Services (HHS) reports one in every 20 admitted patients has an infection related to their hospital care, which leads to $28 to $33 billion in costs annually. In 2009 HHS developed the National Action Plan to Prevent Healthcare-Associated Infections: Roadmap to Elimination that aligns financial incentives to encourage reductions in infections in hospitals and other healthcare settings for everyone, not just Medicare beneficiaries. This Action Plan aligns with the Partnership for Patients, a public-private partnership launched in 20 (see p. 8). Central Line-Associated Bloodstream Infection (CLABSI) by Hospital Compared with State and National Rates By Intensive Care Unit (ICU) Type, Rates per,000 Central Line-Days Coronary Medical Surgical Neonatal (reported by birth weight in grams) Pediatric Hospital <=750 <= >2500 > Barnes-Jewish Hospital N/A * * * * * * * * * * * Cardinal Glennon Hospital * * * * * * Des Peres Hospital * * * * * * * * * * * * * * * * * Mercy Hospital St. Louis 0.8 * * * * Missouri Baptist Medical Center * * * * * * * * St. Anthony s Medical Center * * * * * * * * * * * * * * St. Louis Children s Hospital * * * * * * St. Louis University Hospital * * * * * * * * * * * * * * * * St. Lukes Hospital * * * * 0.4 * * * * * * * * * * * * St. Mary s Health Center * * * * Missouri Rate National Rate Phase I of the Action Plan addresses the most common infections in acute care hospitals and sets nine HAI reduction goals for 203. A 50% decrease in the national incidence rates of central line-associated bloodstream infections (CLABSI) in the intensive care unit (ICU) is an initial target. In January 20, CMS required hospitals to begin reporting ICU CLABSI rates and will tie them to reimbursement in 203. The tables list St. Louis hospital CLABSI rates reported to the Missouri Department of Health and Senior Services (DHSS). Statewide CLABSI rates decreased from 2009 to 200 yet varied widely within hospitals with multiple ICUs and across hospitals. St. Louis hospitals with more ICUs are shown in the table above. Hospitals having only one Medical Surgical ICU are shown in the table to the right. CLABSI rates above the national average are shown in bold black type. From 2009 to 200, approximately one-third of St. Louis hospitals reduced CLABSI rates in at least one ICU. Measurement Should Be Standardized and The Goal Should Be Zero Consumer advocates and health care safety experts have criticized how national and state governments measure CLABSIs, saying they adjust for too many risks including some that should not influence whether a patient contracts an infection. Another concern is that not all patient infections are counted. Currently, CLABSIs are not counted if they occurred during a non- ICU admission. There is also variation in the interpretation of guidelines such as those that establish how long Missouri patients must be in the ICU for CLABSIs to be included in the state s rate. Interestingly, CDC experts do not believe a minimum time in the ICU is necessary to distinguish hospital-acquired versus community-acquired infections. It is encouraging that a growing number of hospital leaders believe CLABSI rates should be measured using a simple count or rates per,000 and also have embraced zero infections as their measure of success. Central Line-Associated Bloodstream Infection (CLABSI) by Hospital Compared with State and National Rates Rates per,000 Central Line-Days** Missouri Hospitals Medical Surgical ICU Barnes-Jewish St. Peters 2.2 Barnes-Jewish West County Christian Hospitals.3.0 DePaul Health Center Des Peres Hospital Jefferson Regional Medical Center Lincoln County Medical Center N/A Missouri Baptist Hospital, Sullivan Missouri Baptist Medical Center Progress West HealthCare St. Alexius Hospital Broadway Campus St. Clare Health Center 0.5 Mercy Hospital St. Louis.4 2. Mercy Hospital Washington St. Joseph Health Center St. Joseph Hospital West. 2.0 Missouri Rate.0.0 Illinois Rate ** N/A N/A Alton Memorial Hospital ** Anderson Hospital ** N/A Gateway Regional Medical Center ** N/A Memorial Hospital ** 0.3 St. Anthony s Health Center (Alton) ** St. Elizabeth s Hospital ** Touchette Regional Hospital ** N/A National Rate.7.7 Source: Missouri DHSS and Illinois Department of Public Health (IDPH). An asterisk (*) indicates a facility was not required to report, did not provide the service, or the sample size was too small. ** IDPH reports hospital Standardized Infection Ratios (SIR) yet no state average. SIR values greater than one exceed the expected rate. 6 St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

9 Frequency of heart surgeries and infections decline Coronary Artery Bypass Graft (CABG) Surgical Site Infection (SSI) Rates per 00 Procedures, 200 Hospital Name (Case count by Risk Group: 2,3 /Risk Group: ) Mercy Hospital St. Louis (28,76) Des Peres Hospital (26,62) 3.8 St. Joseph Health Center (60,86) DePaul Health Center (33,58) Christian Hospitals (78,93) Missouri Rate Risk Group 2,3 = St. Anthony s Medical Center (33,59) Missouri Rate Risk Group = 2.0 Barnes-Jewish Hospital (93,20) 2.4 Jefferson Regional Medical Center (23,42).9 Missouri Baptist Medical Center (39,378).6 St. Lukes Hospital (70,99) 2.5 St. Clare Health Center (6,63) 0.6 St. Mary s Health Center (4,85) Source: Missouri Department of Health & Senior Services (DHSS). Due to low numbers of patients, results are not shown for hospitals providing care to patients in the lowest risk category (0). Surgical site infection (SSI) rates for this risk category were zero in 200. In the United States, studies estimate that surgical site infections (SSI) occur in 4% to 25% of patients who undergo major surgery. These infections result in 8,000 deaths and cost about $0 billion annually. Yet, only eight states require hospitals to publicly report SSIs and there is wide variation in the types of surgical procedures reported. As a result of the Infection Control Act of 2004, Missouri hospitals are required to report SSI rates to the Missouri DHSS for three procedures: abdominal hysterectomy, coronary artery bypass graft, and hip repair. Ambulatory surgical centers are required to report SSI rates for breast surgery and hernia repair. Fewer Coronary Artery Bypass Graft (CABG) procedures have been performed in St. Louis since 2008, decreasing at an average rate of 9% annually. CABG SSI rates also declined an average of 6% per year over the same time period. Variation in SSI rates remains among hospitals, especially for patients at lower risk. Infection rates for patients in the highest risk category have fallen significantly, an average of 32% annually since As the graph shows, seven St. Louis hospitals had infection rates of zero for high-risk patients in 200. The previous year only two hospitals had rates of zero. This success reinforces the power of public reporting to improve care quality. BHC commends St. Louis hospitals for making care safer for high-risk patients undergoing CABG surgery. Payments on the Line Beginning in January 202, hospitals were required to report SSI rates for abdominal hysterectomy and colon surgery to the National Healthcare Safety Network (NHSN), the Centers for Disease Control and Prevention s secure, web-based surveillance system or face a 2% cut in their Medicare payment update in 204. As part of the same program, hospitals have been reporting their CLABSI rates to NHSN since January 20. Benefits of NHSN enrollment include instructional webcast sessions that cover patient safety and healthcare personnel safety. Medicare s program also aligns with the HHS National Action Plan to Prevent Healthcare-Associated Infections (p. 6). If NHSN protocols are enforced, it will introduce much-needed measurement standardization in infection reporting. This is vitally important to ensuring fairness of facility comparisons when the data is publicly reported in the future. Makary, M. A., Aswani, M. S., Ibrahim, A. M., Reagan, J., Wick, E. C. and Pronovost, P. J. (202), Variation in Surgical Site Infection Monitoring and Reporting by State. Journal for Healthcare Quality. doi: 0./j x St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 7

10 Government will align rewards with patient safety In 2008, Medicare s groundbreaking decision to stop paying for certain hospital-acquired conditions (HAC) was among the first in a series of transparency and payment reforms aimed at eliminating harm and aligning incentives. Medicare began publicly reporting HAC rates in 20. Additional payment incentives will occur in 204 (see p. 3, 4, and 5). Many hospitals, including some in the St. Louis region, have eliminated or significantly reduced hospital-acquired infections. Still, variation remains. Results for one of the HAC measures are shown below. While eight area hospitals reported rates of zero, four reported more than twice the national rate. Referred to as Blood Infections from Catheters in a Large Vein on Hospital Compare, rates are for all vascular catheters including central lines. Rates are measured across inpatient settings, not just in the intensive care unit, according to Patrick Romano, MD, a UC Davis professor who assisted in validating the data and risk-adjustment process for Medicare. Lower scores are better St. Louis Area Hospitals Vascular Catheter-Associated Infections Rate per,000 discharges October June 200 St. Anthony s Medical Center.95 St. Alexius Hospital.90 St. Louis University Hospital Barnes-Jewish Hospital Memorial Hospital 0.7 St. Mary s Health Center Mercy Hospital St. Louis Depaul Health Center 0.37 St. Clare Health Center St. Anthony s Health Center Missouri Baptist Medical Center Mercy Hospital Washington 0.27 National Average Des Peres Hospital Gateway Regional Medical Center 0.24 St. Elizabeth s Hospital St. Luke s Hospital Barnes-Jewish St. Peters St. Joseph Hospital West Christian Hospitals Jefferson Regional Medical Center.2 St. Joseph Health Center Progress West Healthcare Center Missouri Baptist-Sullivan Barnes-Jewish West County Touchette Regional Hospital St. Joseph Hospital-Breese Anderson Hospital Alton Memorial Hospital Medicare Hospital-Acquired Conditions (HAC) Retention of foreign object after surgery or other procedure Stage 3 or 4 ulcers (bedsores) acquired after admission to the facility (may not result in death) Incompatible blood or blood products administration A Fall Intravascular air embolism Catheter-associated urinary tract infections Vascular catheter-associated infections *Mediastinitis after coronary artery bypass surgery* *Elective orthopedic and bariatric surgical site infections* *Deep vein thrombosis or pulmonary embolism following a knee or hipreplacement* Severe complications from poor control of blood glucose * Medicare did not release hospital scores for these HACs. The National Quality Forum released the initial list of reportable adverse health care events aka Never Events in The first four HACs highlighted above in blue are also part of the NQF never events list. To learn more, go to the NQF website via this link: Serious_Reportable_Events.aspx Source: CMS Hospital Compare. Hospital-acquired condition (HAC) measures are not risk-adjusted. Through transparency and incentives, CMS has leveraged its purchasing power to improve care safety. The Partnership for Patients (PfP), an HHS initiative, aims to connect private sector purchasers and patient advocates with providers in a shared effort to decrease preventable HACs by 40% and reduce all hospital readmissions by 20% by 203. BHC is proud to support this effort as a signer of this pledge. Payers and Providers, October 27, 20 8 St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

11 Patient safety ratings now available to consumers In October 20, Medicare provided consumers new information on patient safety at hospitals when it began posting information on how often patients experienced certain serious complications during medical treatment on its Hospital Compare website. These inpatient patient safety/complication indicators (PSI) were developed by the Agency for Healthcare Research and Quality (AHRQ). While AHRQ patient safety events are considered to be rare, some of them result in high rates of mortality. For example, while post-operative sepsis accounted for only 2% of hospitalizations, it resulted in 7% of in-hospital deaths according to the CDC. These complications have the potential to be prevented if hospitals follow safe practices. AHRQ Patient Safety Indicator (PSI) 90 is a composite of selected indicators of inpatient complications and patient safety. Lower scores are better St. Louis Area Hospitals, Rate per,000 Discharges St. Joseph Hospital West Alton Memorial Hospital Des Peres Hospital Jefferson Regional Medical Center Depaul Health Center Gateway Regional Medical Center St. Joseph Health Center St. Joseph Hospital-Breese St. Mary s Health Center Barnes-Jewish St. Peters Mercy Hospital Washington Mercy Hospital St. Louis St. Anthony s Health Center Christian Hospitals Memorial Hospital St. Clare Health Center Progress West HealthCare Center Missouri Baptist Medical Center Barnes-Jewish West County St. Anthony s Medical Center St. Elizabeth s Hospital St. Luke s Hospital Anderson Hospital Barnes-Jewish Hospital St. Louis University Hospital October, June 30, National 0.48 Average AHRQ PSI 90 What s Included: Pressure Ulcer (bedsore) Iatrogenic Pneumothorax (lung collapse) Central-Line Catheter Infections Postoperative Measures: Hip fracture Pulmonary embolism or deep vein thrombosis (lung or leg blood clot) Sepsis (serious blood infection) Wound dehiscence (surgical incision reopens) after abdominal surgery Accidental puncture or laceration Why use composite measures? AHRQ considers composite measures to be an easier way to monitor health care provider performance over time. Some potential benefits include the ability to: Summarize quality across indicators Improve ability to detect differences Identify important drivers of quality Prioritize action for quality improvement Make current decisions about future health care needs Source: CMS Office of Strategic Operations and Regulatory Affairs (OSORA). Indicators used in this measure are risk-adjusted and the margin of error at a 95% confidence interval is shown at the end of each bar. Due to low case counts, the rates for Missouri Baptist Sullivan, St. Alexius and Touchette Regional hospitals are not listed. St. Louis hospitals most recent scores on the AHRQ PSI 90, a composite of the indicators shown in the box to the right above, are shown in the graph. BHC would like to congratulate SSM DePaul and St. Mary s health centers for improving their performance. Performance was statistically worse than the national average for the four hospitals with the highest rates. Yet, better performance is possible. Based on data from Hospital Compare, 2.6% of the nation s hospitals performed statistically better than the U.S. average on this composite measure. Unfortunately, none of these hospitals were located in the St. Louis region. Medicare s Hospital Value-Based Purchasing (VBP) Program, described on page 3, was scheduled to include the AHRQ PSI 90 composite measure for fiscal year 204. However, the law requires Medicare to post measure results on Hospital Compare for one year prior to the start date of the measurement period, which was set for March 3, 202. As posting was delayed until October 20, the requirement could not be satisfied. Medicare has said it intends to include this measure in the VBP payment incentives in the future. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 9

12 Nationally, medical cost growth in 200 edged higher yet remained close to the historic low that was set in the previous year. High unemployment, declining rates of health coverage, stagnant wages, and future financial uncertainty associated with the recession were among the factors responsible for the slowdown. Employers pay more Despite slower medical cost growth, employers health benefit costs increased 6.9% in 200 compared to 5.5% in 2009 according to Mercer s National Survey of Employer-Sponsored Health Plans. This increase was not shared equally. Large, self-insured employers that pay the actual costs of medical care experienced a much sharper increase of 8.5%. Workers get less Health benefit costs grew more than three times as fast as worker s earnings and overall inflation in 200. Wage growth fell to a historic low. Median inflation-adjusted household income was the lowest recorded since 996. As a result, consumers continued to postpone medical care or seek lower cost alternatives resulting in fewer inpatient admissions, elective procedures and emergency services. This contributed to a marked deceleration in hospital and prescription drug spending. Growth slowed slightly in the use of physician services. Although the recession officially ended in June 2009, the slow economic recovery has had a lingering impact on the health care sector. While St. Louis area hospitals experienced a similar decline in service use as their peers nationally, aggregate revenue and financial performance remained solid as demonstrated in the following section of the report. Section Two: Financial Performance Aggregate Charges, Revenues and Expenses Billions $25 $20 St. Louis Area Hospital Industry, Shown in 200 Dollars Charges Charges increased 3.% in 200. Expenses increased 0.9% in 200. $5 Allowances Revenues were flat in 200. $0 Revenue Expenses Expenses Minus $5 Depreciation Source: Centers for Medicare and Medicaid Services Medicare Cost Reports and audited financial statements. Inflation adjustments are based on the U.S. Labor Department s St. Louis area CPI (including medical component); consolidated hospital organizations may not report all of their non-operating revenue and expenses by individual hospital. The cumulative effect of this may not be fully reflected in these results. Charges grew 3.% in 200, about the same as overall inflation, to more than $2 billion. The proportion of inpatient care continued to shrink while outpatient care grew at St. Louis hospitals, reaching 44% in 200. In recent years, CMS and health plans replaced the charge-based outpatient payments of the past with a fixed fee schedule to control costs. Yet, there are exceptions to the fixed reimbursements. For example, CMS pays more for some services, new technologies, and unusually costly patients. Children s, rural and cancer hospitals payments remain at previous levels. Expenses grew less than % in 200, the smallest increase in ten years. Falling inpatient admissions and emergency department visits contributed to the slowdown in expense growth. In addition, depreciation expense remained steady in 200, a welcome break from the increases of recent years spurred by regional health care building projects and information technology infrastructure improvements. 2 Revenues were flat in 200 after the historic increase from the prior year. The slowdown in revenue was expected given the decline in hospital admissions and service use. Non-operating revenue decreased due to weakness and volatility in the financial markets. Despite this, aggregate revenues remained at more than $8 billion keeping health care prices high for patients and payers in the St. Louis region. A Martin, D Lassman, B Washington, A Catlin, Growth in US Spending Remained Slow in 200; Health Share of Gross Domestic Product Was Unchanged From 2009, Health Affairs, January 202, 3:. 2 A Mueller, Health-care highway, $2.6 million in projects on the drawing board for 64/40 s medical miles, St. Louis Business Journal, October 4, St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

13 Aggregate Financial Performance Hospital Financial Performance Summary of Aggregate Financial Statements and Financial Indicators for St. Louis Area Hospitals All figures are in millions of dollars Income Summary Total Gross Charges 0,65,348 2,739 4,024 5,334 6,66 7,842 9,034 20,409 2,538 Less: Allowances (5,836) (6,504) (7,64) (8,550) (9,428) (0,388) (,37) (2,83) (3,46) (4,047) Net Patient Revenue 4,329 4,844 5,25 5,474 5,906 6,226 6,525 6,850 7,263 7,492 Other Operating Revenue Total Operating Revenue 4,472 4,997 5,37 5,685 6,05 6,432 6,75 7,049 7,525 7,762 Total Operating Expenses (4,358) (4,743) (5,043) (5,469) (5,90) (6,54) (6,473) (6,792) (7,205) (7,429) Income (Loss) from Operations Non-Operating Revenue 28 (3) (440) Non-Operating Expenses (54) (67) () (4) (0) (22) (29) (45) (32) (38) Excess (Deficit) of Revenues Over Expenses (228) Balance Sheet Current Assets: Cash and Marketable Securities (77) (73) (76) (257) (37) Net Patient Accounts Receivable , Other Receivables Other Current Assets Total Current Assets ,233,542,920,577,68 Land, Building and Equipment Cost 4,830 5,069 5,39 5,643 5,946 6,335 6,852 7,497 7,956 8,34 Accumulated Depreciation (2,633) (2,69) (2,892) (3,030) (3,238) (3,437) (3,694) (3,982) (4,272) (4,572) Net Land, Building and Equipment Cost 2,97 2,378 2,499 2,63 2,708 2,898 3,59 3,55 3,684 3,769 Investments Held by Trustee Deferred Financing Costs Other Cash and Investments ,022,086 Other Assets,07,095,328,503,66,785,70,362,662,835 Total Assets 4,870 5,00 5,537 6,06 6,388 7,450 7,688 7,864 8,329 8,735 Liabilities and Fund Balance Current Liabilities ,460,377,736 2,00 2,78 Long-term Debt,20,09,088, ,00,9,258,85 Other Liabilities and Reserves Fund Balance 2,776 2,884 3,385 3,787 4,77 4,72 4,903 4,259 4,709 5,39 Total Liabilities and Fund Balance 4,870 5,00 5,537 6,06 6,388 7,450 7,688 7,864 8,329 8,735 Endowment, Specific Purpose and Other Restricted Fund Balances Financial Indicators Operating Margin 2.55% 5.09% 5.5% 3.80% 3.34% 4.33% 4.% 3.65% 4.24% 4.29% Profit Margin.95% 3.50% 8.96% 6.54% 5.08% 7.42% 6.04% -3.45% 8.58% 7.57% Return on Equity 3.7% 6.03% 4.69% 0.2% 7.58% 0.48% 8.52% -5.35% 4.4%.89% Mark-up Percentage (Charges over Cost) 33.2% 39.3% 52.6% 56.4% 59.8% 69.6% 75.6% 80.2% 83.2% 89.9% Allowances as % of Charges 57.4% 57.3% 59.8% 6.0% 6.5% 62.5% 63.4% 64.0% 64.4% 65.2% In 2002, Barnes - Jewish Hospital s ($2.2) million non-operating loss was included in non-operating revenue. In 2008, BJC HealthCare system s ($477.6) million non-operating loss was included in nonoperating revenue. St. Alexius and Forest Park hospitals were sold to Doctors Community Healthcare Corporation in 2004, and Success Healthcare in Due to the transfer in ownership, 2002, 2003, 2004, 2007, and 2008 data could not be verified. Sources: Centers for Medicare and Medicaid Services Medicare Cost Reports and audited hospital financial statements. Note: Changes in previously reported data are based on most current information available including numerous restatements. All figures are rounded. All data in this table are not adjusted for inflation. Differences in accounting practices for expenses and investment income across hospital systems may understate some St. Louis hospital systems profits. Although consistent with accepted accounting principles, hospital systems may allocate 00% of certain expenses (i.e., executive salaries) and investment income proportionately to individual subsidiary hospitals while others retain some or all of these expenses at the system level. BHC has worked to collect this information and adjust for differences as possible but due to limited access to data, viewers should make comparisons with this in mind. BHC will continue its efforts to fully accommodate these differences in future reports and will adjust data retrospectively to allow trends to be evaluated. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202

14 Profits robust despite difficult economy Millions $750 $600 $450 $300 $50 $0 -$50 -$300 -$450 Aggregate Hospital Performance - Total Profit Profile St. Louis Area Hospital Industry, Non-operating Revenue Operating Income In 200, profit margins outperform the national average for the second year }Source: Medicare Cost Reports, audited financial statements, and MHA/AHA Annual Licensing Surveys. In 200, profit margins at U.S. hospitals reached a record-breaking 7.2%, the highest in 30 years. Operating margins were also the highest in decades at 5.5%. This was achieved despite the biggest yearly drop in admissions ever observed by Moody s Investor s Service. The American Hospital Association reported improvements in cost efficiency contributed to record hospital profits nationally. Robust outpatient utilization also helped make up for the decline, according to the Medicare Payment Advisory Commission (MedPAC). Profit margins in aggregate for St. Louis hospitals reached 7.6% in 200, the second highest in 5 years. While area hospitals collectively earned more than $600 million in profit, it was not shared equally among them, as shown on page 3. In addition, this profit margin is likely a conservative estimate given that system-level investment income is not reported in individual hospital results for both the Mercy and Tenet hospital systems. Investment earnings here were $36 million, a 9% decrease from the historic high set in Operating margins similarly improved and varied across the region. Operating income improved by about 4% over the previous year to $333 million. This increase occurred despite a 3% decrease in inpatient admissions, much steeper than the 0.4% decrease nationally. Operating margins shown on page 5 ranged from a negative 0.9% to nearly 6%. Mercy had the highest operating margin at 5.8% despite the largest decline in admissions compared to other St. Louis systems. BJC Healthcare earned the second highest operating margin of 5.6% despite flat utilization. If hospitals are providing fewer services, why are profits increasing? Sustained revenues in the face of declining utilization in 200 suggest higher prices. Increased profits despite falling service use could also indicate rising prices or improved efficiency. Unfortunately data are not available to tell us what happened in the St. Louis market. Medicare losses increased at St. Louis hospitals in 200 which may indicate continuing inefficiency based on findings from studies discussed below. As cited in last year s report, a 2009 study by MedPAC found hospitals in more competitive health care markets had become more efficient and were thus able to make money on Medicare admissions. Interestingly, these hospitals also produced consistently higher quality outcomes. Unlike hospitals in competitive markets, hospitals in the least competitive markets lacked the cost pressure to force efficiencies, so they lost money on Medicare and charged private payors even more to compensate for the losses. A new 20 study looks at this issue in more depth and adds evidence to support these findings (see p. 4 for more on this report). Nationwide and in the St. Louis region, hospitals and health systems report they are working to reduce their cost structures and improve their efficiencies so they earn a profit for providing Medicare services. 2 Medicare spending is the largest single contributor to the growth in the federal deficit and hospital payments are the largest single contributor to rising Medicare costs. 3 Given the perilous state of the U.S. economy and the rising burden of health care costs, it is imperative for hospitals to make the changes necessary to become more efficient, improving affordability and access to health care for all. A Selvam, One for the record books, Hospital profit margins hit highest level in decades, Modern Healthcare, page 2, January 9, P Betbeze, In AL, Some Hospitals Thrive on Medicare, HealthLeaders Media, April 4, J Robinson, Hospitals Respond to Medicare Payment Shortfalls By Both Shifting Costs and Cutting Them, Based on Market Concentration, Health Affairs, July 20, 30:7. 2 St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

15 200 Individual hospital and system results Avail. Patient Avail. Avg. FTE per Net Profit Profit margin System Name (market share ) beds days occup. % LOS occup. bed profit margin net of deprec. BJC HealthCare (32.3%) Alton Memorial Hospital 52 28, % ,90, % 23.40% Barnes-Jewish Hospital,24 295, % ,427, % 9.55% Barnes-Jewish Hospital - St. Peters 7 29, % ,838,7 4.99% 2.56% Barnes-Jewish Hospital - West County 79 0, % ,872, % 5.23% Christian Hospitals NE/NW , % ,563, % 0.93% Missouri Baptist Hospital - Sullivan 58 8, % ,077, % 3.45% Missouri Baptist Medical Center , % ,464, % 9.32% Progress West HealthCare Center 72 9, % ,58, % -3.2% St. Louis Children s Hospital 32 7, % ,708, % 2.33% Network Total 2, , % ,830, % 8.59% SSM Health Care (20.70%) Cardinal Glennon Hospital 74 44,455 7% ,064, % 4.02% DePaul Health Center 422 0, % ,876, % 5.74% St. Clare Health Center 59 45, % ,076, % 6.23% St. Joseph Health Center - St. Charles , % ,99,64.46% 5.86% St. Joseph West - Lake St. Louis 22 29, % ,65, % 9.44% St. Mary s Health Center , % ,542,438 9.% 2.8% Network Total, , % ,943, % 9.30% Mercy (0.63%) Mercy Hospital St. Louis , % ,007, % 2.97% Mercy Hospital Washington 9 8, % ,642, % 0.54% Network Total, , % ,365, %.66% Tenet HealthSystem (5.88%) Des Peres Hospital 43 36, % ,090, %.04% St. Louis University Hospital , % ,050,37.75% 6.6% Network Total , % ,4, % 7.83% Missouri Non-Merged (6.97%) Jefferson Regional Medical Center , % ,62, % 2.6% Kindred Hospital 94 20, % ,532, % -3.79% Lincoln County Memorial Hospital 25 4, % ,002, % 2.52% St. Alexius Hospital-Broadway Campus , % , %.45% St. Alexius Hospital-Forest Park Campus ,00 2.0% , % 2.0% St. Anthony s Medical Center , % ,054, % 5.76% St. Luke s Hospital , % ,059, % 9.63% Total, , % ,599,28.97% 7.6% Illinois Non-Merged (3.69%) Anderson Hospital 49 29,98 55.% ,57, % 0.53% Gateway Regional Medical Center 38 39, % ,308, % 7.25% Memorial Hospital (Belleville) 36 62, % ,625, %.47% St. Anthony s Health Center (Alton, IL) 4 9,78 46.% ,523, % 7.76% St. Elizabeth s Hospital (Belleville) , % ,54, % -0.44% St. Joseph Hospital (Breese, IL) 57 6,246 3% ,64, % 9.68% Touchette Regional Hospital , % ,795,5-2.77% 0.70% Total,34 229, % ,279, % 7.56% Aggregate for 33 St. Louis Hospitals 9,056,944, % ,58, % 2.82% Market share percentages listed by each network are based on total number of discharges for the hospitals in the network. Hospital network configurations are current as of St. Joseph Health Center & St. Joseph Hospital-Wentzville report on a combined basis. 3 In December of 2008, Forest Park and St. Alexius Hospitals were acquired by Success Healthcare. In 2009, Forest Park was renamed St. Alexius Hospital-Forest Park Campus. 4 Kenneth Hall Regional and Touchette Regional Hospitals report on a combined basis. 5 Kindred Hospital, a long-term acute care hospital, is not included in the aggregate average LOS figure. 6 St. Louis average excludes two teaching hospitals, Barnes-Jewish Hospital and St. Louis University Hospital, that may have higher numbers of FTEs. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 3

16 Market dominance results in wide variation in payments Private payers have long known they pay more for health care services than government payers. The private sector paid an average of 34 cents more for every dollar spent to cover services provided to patients covered by Medicare, Medicaid or to the uninsured, based on the most current national data from the American Hospital Association (AHA). This was the highest amount in more than 20 years. What is debatable is whether it has to be this way. The Medicare Payment Advisory Commission s (MedPAC) 2009 report raised an interesting question. If hospitals in competitive markets were efficient enough to earn a profit on Medicare, could hospitals in less competitive markets do the same? As shown in the upper right table, Medicare losses in St. Louis were $95.6 million in 200, or about 2.9% of operating revenue based on the most current community benefit data available from the Missouri Hospital Association (MHA). This is up from $7.8 million in 2008, or about.9% of operating revenue, as shown in last year s report. MHA did not report these data for These figures are net of additional subsidies Medicare paid to some hospitals. Subsidies represented.9% of operating revenue in 200, down from 3.4% in If Medicare losses are a marker of hospital inefficiency, results from St. Louis hospitals indicate room for improvement. While it would be overly simplistic to assume hospitals can control all of the factors that contribute to rising costs, MedPAC s study suggests significant gains in efficiency are achievable. A recent study provides further evidence to support the MedPAC perspective. 2 Profitability was evaluated for hospitals located in markets with robust competition and in markets where hospital care was concentrated in only a few hospital systems. Hospital profit was measured using the contribution margin for care provided to patients undergoing one of seven procedures. The contribution margin is the difference between the revenue received from payers and the direct costs of care. Administration, depreciation and charity care expenses are excluded. Therefore, the contribution margin is not equal to a profit margin. Across all regions, the study found that Medicare patient costs were higher and payments were lower than for privately insured patients. While hospitals earned modest contribution margins for Medicare, margins were substantial for privately insured patients. Contribution Margins for Medicare and Privately Insured Patients In Concentrated and Competitive Markets Knee Hip Lumbar Cervical Payer replacement replacement fusion fusion Hospitals in Concentrated Markets ($) Medicare ,88 Private Ins. 3,73 5,938 28,85 3,020 Hospitals in Competitive Markets ($) Medicare,700,023, Private Ins. 7,529 6,732 7,95 5,946 Source: Data obtained from the value purchasing initiatives of the Integrated Healthcare Association and Aspen Health Metrics. Margins adjusted for patient-specific differences in age, diagnoses, comorbidities, complications, and discharge destination, plus hospital characteristics (procedure volume, staffed beds, teaching status, wage rate). Medicare Losses, Operating Margins and Medicare Subsidies St. Louis Hospitals, Medicare Medicare Operating Loss as % of 200 Subsidies as System/Hospital Name Revenue Operating Operating % of Oper. (market share) (000) Revenue Margin Revenue BJC HealthCare (32%) $3,037, % 5.6% 2.8% SSM Health Care (2%),38, % 4.9% 3.0% Mercy (%) 908, % 5.8% % Tenet Health System (6%) 477, % 3.4% % Missouri Non-Merged (7%) Jefferson Regional Medical Center 30,50 % 6.4%.6% Kindred Hospital 29, % -5.% % St. Anthony s Medical Center 439,279.4% 0.9% % St. Luke s Hospital 44, % 3.9% % Aggregate St. Louis (MO only) $6,775, % 4.8%.9% Source: Missouri Hospital Association (MHA) Community Benefit reports. Medicare losses are reported net of Medicare subsidies. Medicare subsidies obtained from CMS include Disproportionate Share Hospital Payments (DSH), indirect medical education, and graduate medical education payments. Market share is based on inpatient discharges. Hospitals that did not report to MHA are not listed yet are included in operating revenue, margin and Medicare subsidy aggregate totals. When the structure of the local market was considered, the differences were even more striking. The table below shows the contribution margins for four of the seven procedures. In concentrated markets, hospitals lost money on Medicare payments in three of the four procedures, however, these hospitals made up the losses through the higher contribution margins made on patients with private insurance. On average, for these procedures, contribution margins for patients with private insurance were twice as high at hospitals in concentrated markets as compared to those in competitive markets. Similar market-related differences in contribution margins for Medicare and private insurance exist for the other three procedures in the study. The Forecast Expanding coverage under the Affordable Care Act will be financed in part by slowing the growth of Medicare payment rate increases to hospitals and other health care providers. Medicare payments will also face downward pressure as the government works to reign in the federal deficit. Hospitals that focus their energies on process improvement will stand the best chance of thriving. American Hospital Association, Trendwatch Chartbook J Robinson, Hospitals Respond to Medicare Payment Shortfalls By Both Shifting Costs and Cutting Them, Based on Market Concentration, Health Affairs, July 20, 30:7. 4 St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

17 Operating margin trends St. Louis Area Hospital Industry Missouri Hospitals Barnes-Jewish Hospital 2.79% 3.73% 4.34% 3.58% 3.75% 3.59% 2.8% 3.60% 3.45% 3.74% Barnes-Jewish Hospital-St. Peters.25% 8.8% 9.08% 3.04% 4.3% 4.9%.78% 2.5% 7.77% 5.78% Barnes-Jewish Hospital-West County 24.67% 26.86% 26.82% 23.29% 6.05% 8.33% 4.04%.80%.82% 5.57% Cardinal Glennon Hospital 7.60% 2.35% 9.93% 4.6%.43% 3.93% 5.64% 9.6% 9.79% 7.% Christian Hospitals -7.87% 6.92% 6.84% 4.78% 0.88% -4.38% -3.3% -.79%.8% -0.55% DePaul Health Center -0.47% 2.47% 4.43% 4.88% 7.55% 0.%.67%.42% 2.4% 3.3% Des Peres Hospital.6% 3.36%.95% 8.06% 7.33% 2.3% 0.43% 0.27% 9.44% 7.64% Jefferson Regional Medical Center.25% -0.50% -0.80% -0.66% 0.73%.49% 0.85% 3.82% 6.3% 6.39% Kindred Hospital -7.24% 7.7% 8.% 9.60% 7.63% 7.4% 8.3% 3.93% 3.8% -5.4% Lincoln County Memorial Hospital 4.97% 3.05% -8.53% -5% -5.9% -2.74% -2.45% 2.04% -6.9% -3.63% Mercy Hospital St. Louis 0.62% 2.3% 3.44% 3.67%.73% 5.94% 8.37% 9.34% 7.97% 7.20% Mercy Hospital Washington 4.88% 4.84% 3.04% 3.88% 3.25% 5.5% 2.68% 5.60% 0.33% -5.89% Missouri Baptist Hospital - Sullivan -.85% 2.7% 9.6% 3.0% 0.8% 0.44% -0.75% -.35% -4.23% -4.33% Missouri Baptist Medical Center 9.36% 5.96% 5.6% 5.36% 2.38% 8.05% 7.25% 9.05% 8.4% 9.06% Progress West HealthCare Center n/a n/a n/a n/a n/a n/a -74.3% % -.% -0.89% St. Alexius Hospital - Broadway Campus,2-9.63% -8.85% 0.37% -8.23% 0.49%.05% 0.33%.38% 2.58% 2.50% St. Alexius Hospital - Forest Park Campus -.45% 2.76% 2.64% % -6.03% -2.68%.46% 0.3% -0.87% -3.56% St. Alexius Hospital - Jefferson Campus,2 6.55% -8.84% -6.73% n/a n/a n/a n/a n/a n/a n/a St. Anthony s Medical Center -4.37% -8.47% 0% 2.06%.5%.82% 0.90% -0.85% 0.90% 0.87% St. Clare Health Center n/a n/a n/a n/a n/a n/a n/a n/a %.07% St. Joseph Health Center - St. Charles % 2.74% 4.2%.27%.29% 7%.43% -2.85% 6.2% 2.54% St. Joseph Health Center - Wentzville % -9.77% -3.93% % -47.2% n/a n/a n/a n/a n/a St. Joseph Hospital West - Lake St. Louis 0.62% 0.70% 4.84% 3.5% 5.82% 2.97% 2.58% 0.22% 3.34% 6.44% St. Louis Children s Hospital 3.68% 5.0% 4.85% 8.23% 8% 2% 2.54% 0.57%.2% 8.7% St. Louis University Hospital 2.55% 8.36% 7.95% -5.82% -7.86% -0.44% 2.7%.78% -.80%.75% St. Luke s Hospital 4.83% 4.5% 3.58% 3.37% 3.3% 3.4% 4.04% 2.3% 2.54% 3.89% St. Mary s Health Center 2.% 4.93% 5.23% 5.57% 7.00% 2.66% 0.63%.89% 6.8% 7.80% Aggregate for Missouri Hospitals 3.08% 5.60% 5.58% 4.06% 3.58% 4.09% 4.22% 4.03% 4.52% 4.73% Illinois Hospitals Alton Memorial Hospital.5% 4.9% 5.44% 5.56% 3.% 6.3% 5.90%.46% 8.5% 8.2% Anderson Hospital.6% -0.5% -0.90% -5.48% 2.0% 6.23%.98%.47% 0.34%.2% Gateway Regional Medical Center -.2% 7.75% 7.60% 2.43% 5.3% 2.29% 8% 3.42% 7.76% 2.47% Memorial Hospital (Belleville) -0.82% -0.56% -.52% -2.0% -4.0% 4.83% 5.54% 3.9% 2.99% 4.53% St. Anthony s Health Center (Alton) % 4.32% 0.36% -3.30% -3.2% 4.00% 5.08% -0.83% 0.58% 4.% St. Elizabeth s Hospital (Belleville) -4.07% -.36% 2.2% -4.22% -4.24% 0.6% -2.92% -7.66% -.84% -8.3% St. Joseph Hospital (Breese) 2.4% 0.72% 2.30%.82%.72% 0.29% 8.58% 8.92% 0.57% 5.35% Touchette Regional Hospital % 0.36%.22% 3.37% -.2% 20.33% 4.79% -.27% -4.9% -4.62% Aggregate for Illinois Hospitals -0.86%.79% 2.36% 2.%.82% 5.80% 3.46%.7% 2.40%.28% Aggregate for St. Louis Area Hospitals 2.55% 5.09% 5.5% 3.80% 3.34% 4.33% 4.% 3.65% 4.24% 4.29% St. Alexius and Forest Park hospitals were sold to Doctors Community Healthcare Corporation in 2004, and due to the transfer in ownership, 2002, 2003, and 2004 data could not be verified. In December of 2008, Forest Park and St. Alexius Hospitals were acquired by Success Healthcare, and due to the transfer in ownership, 2007 and 2008 data could not be verified. In 2009, Forest Park Hospital was renamed St. Alexius Hospital-Forest Park Campus. 2 Beginning in 2004, St. Alexius-Broadway Campus and St. Alexius-Jefferson Campus reported on a combined basis as St. Alexius Hospital-Broadway Campus. 3 Crossroads Regional Hospital was acquired by SSM Health Care in November 2005 and renamed St. Joseph Health Center-Wentzville. In 2006, it began reporting on a combined basis with St. Joseph Health Center. 4 Statistics for St. Anthony s Health Center and St. Clare s Hospital are combined under St. Anthony s Health Center. 5 Beginning in 2009, Kenneth Hall Regional Hospital and Touchette Regional Hospital reported on a consolidated basis. Kenneth Hall Regional Hospital was closed by the end of Sources: Centers for Medicare and Medicaid Services Medicare Cost Reports and audited hospital financial statements. All data in this table are not adjusted for inflation. Note: Changes in previously reported data are based on most current information. Hospitals no longer in operation as of 200 are not individually listed, but their results for are included in aggregate figures. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 5

18 Profit margin trends St. Louis Area Hospital Industry Missouri Hospitals Barnes-Jewish Hospital 3.20%.4% 6.80%.58% 7.% 2.50% 7.74% % 7.78% 4.30% Barnes-Jewish Hospital - St. Peters 8.22% 4.96% 2.9% 4.35% 3.63% 4.46%.84% -8.39% 7.26% 4.99% Barnes-Jewish Hospital - West County 5.2% 9.73% 20% 6.02% 5.42%.0% 8.28% 4.46% 3.7% 7.93% Cardinal Glennon Hospital 8.29%.9% 0.22% 6.04% 3.77% 6.38% 2.9% 9.98% 3.79% 9.85% Christian Hospitals -0.36% 3.86% 3.9% 8.73% 2.23%.52% -.5% -7.93%.04% 5.3% DePaul Health Center -0.43% 2.58% 4.5% 4.87% 7.8% -0.6% 0.79% 0.5%.2% 2.66% Des Peres Hospital 6.5% 7.9% 7.78% 4.8% 3.29% 6.29% 6.4% 7.4% 9.47% 7.66% Jefferson Regional Medical Center.62% 0.86% 0.7% 0.45% 2.0% 3.4% 2.28% 4.7% 7.6% 7.32% Kindred Hospital -7.24% 7.76% 8.3% 9.64% 7.66% 7.7% 7.7% 3.94% 3.8% -5.4% Lincoln County Memorial Hospital 5.90% 3.42% -8.34% 5% 3.20% 7.07% 3.80% 7.3% -0.73% -3.00% Mercy Hospital St. Louis -0.79%.52% 3.42% 3.37%.79% 5.89% 8.52% 0.60% 8.9% 7.26% Mercy Hospital Washington 4.74% 4.06% 2.95% 3.82% 3.48% 5.68% 2.69% 5.6% 0.35% -5.86% Missouri Baptist Hospital - Sullivan -2.95%.35% 8.52%.% 5% -0.38% -3.02% -4.7% -4.89% -4.74% Missouri Baptist Medical Center 7.4% 4.69% 7.33% 7.08% 3.77% 2.06% 9.49% -3.20% 4.74% 3.93% Progress West HealthCare Center n/a n/a n/a n/a n/a n/a -67.7% % -8.0% -8.44% St. Alexius Hospital - Broadway Campus,2-9.39% -8.86% 0.37% -8.23% 0.49%.05% 0.33%.38% 2.60% 0.38% St. Alexius Hospital - Forest Park Campus -4.07% -0.86% 2.64% % -6.03% -2.67%.46% 0.3% -0.87% 0.86% St. Alexius Hospital - Jefferson Campus,2 2.34% -7.94% -6.7% n/a n/a n/a n/a n/a n/a n/a St. Anthony s Medical Center -3.98% -7.3%.88% 7.79% 6.40% 5.08% 3.06% 4.08% 0.8% -0.7% St. Clare Health Center n/a n/a n/a n/a n/a n/a n/a n/a -30.2% -.29% St. Joseph Health Center - St. Charles % 2.9% 4.24%.2%.32% -0.35% 0.52% -3.95% 4.83%.46% St. Joseph Health Center - Wentzville % -9.77% -3.93% % -47.2% n/a n/a n/a n/a n/a St. Joseph Hospital West - Lake St. Louis 0.99%.23% 5.20% 2.92% 5.76% 2.32%.9% -.49%.76% 5.64% St. Louis Children s Hospital 5.30% 3.39% 6.0% 5.9% 4.65% 4.94% 2.92% -0.48% 9.00% 5.33% St. Louis University Hospital 3.45% 8.04% 7.73% -5.82% -7.86% -0.44% 2.7%.78% -.80%.75% St. Luke s Hospital 5.90% 4.9% 4.6% 4.06% 4.20% 6.36% 5.43% 6.34% 4.25% 4.34% St. Mary s Health Center 3.58% 5.47% 5.74% 6.86% 8.5% 4.23% 4.3%.5% 8.45% 9.% Aggregate for Missouri Hospitals 2.04% 3.75% 9.55% 6.89% 5.24% 7.22% 5.94% -4.20% 9.20% 7.98% Illinois Hospitals Alton Memorial Hospital 2.98% 3.96% 2.63% 9.9% 6.89% 6.0% 3.22%.58% 22.48% 6.86% Anderson Hospital 4.3%.2% 0.% -4.28% 3.3% 7.72% 5.60% -.9% 5.6% 6.25% Gateway Regional Medical Center -9.99% 7.75% 7.60% 2.43% 5.3% 2.29% 7% 3.3% 7.76% 2.47% Memorial Hospital (Belleville).69% -.53% 0.2% -0.3% -0.5% 8.96% 8.28% 4.65% 5.39% 6.6% St. Anthony s Health Center (Alton) % 4.63% 2.8% -2.63% -2.08% 5.06% 6.0% 2.03% 0.69% 4.57% St. Elizabeth s Hospital (Belleville) -0.60% -.04% 5.0% -.04% -.84%.00% -4% -8.03% -5.0% -5.94% St. Joseph Hospital (Breese) 8.49%.33% 9.0% 8.94% 8.40% 2.64% 8.99% 6.58% -6.73% 3.04% Touchette Regional Hospital % 0.76%.69% 3.96% -0.57% 2.25% 6.02% -0.52% -4.39% -2.77% Aggregate for Illinois Hospitals.39%.82% 5.02% 4.23% 4.% 8.63% 6.64%.6% 4.38% 4.72% Aggregate for St. Louis Area Hospitals.95% 3.50% 8.96% 6.54% 5.08% 7.42% 6.04% -3.45% 8.58% 7.57% St. Alexius and Forest Park hospitals were sold to Doctors Community Healthcare Corporation in 2004, and due to the transfer in ownership, 2002, 2003, and 2004 data could not be verified. In December of 2008, Forest Park and St. Alexius Hospitals were acquired by Success Healthcare, and due to the transfer in ownership, 2007 and 2008 data could not be verified. In 2009, Forest Park Hospital was renamed St. Alexius Hospital-Forest Park Campus. 2 Beginning in 2004, St. Alexius-Broadway Campus and St. Alexius-Jefferson Campus reported on a combined basis as St. Alexius Hospital-Broadway Campus. 3 Crossroads Regional Hospital was acquired by SSM Health Care in November 2005 and renamed St. Joseph Health Center-Wentzville. In 2006, it began reporting on a combined basis with St. Joseph Health Center. 4 Statistics for St. Anthony s Health Center and St. Clare s Hospital are combined under St. Anthony s Health Center. 5 Beginning in 2009, Kenneth Hall Regional Hospital and Touchette Regional Hospital reported on a consolidated basis. Kenneth Hall Regional Hospital was closed by the end of Sources: Centers for Medicare and Medicaid Services Medicare Cost Reports and audited hospital financial statements. All data in this table are not adjusted for inflation. Note: Changes in previously reported data are based on most current information. Hospitals no longer in operation as of 200 are not individually listed, but their results for are included in aggregate figures. 6 St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

19 Excess beds decrease to lowest level in five years Excess available inpatient beds at St. Louis hospitals decreased to 26% of available beds in 200. This translates to an excess of 2,397 beds available at St. Louis area hospitals on an average day in 200. It was the fewest number of excess available beds in five years. Excess available beds measures utilization of inpatient capacity. It considers a hospital to be at full occupancy if 80% of available beds are used in a given year. The excess figure indicates the number of unused beds below 80% occupancy (see Technical Notes on p. 20). Excess Available Beds in 200 by Network Tenet Health System 47 Illinois Non-merged 554 Missouri Non-Merged 54 Mercy 290 BJC Healthcare 735 SSM Health Care 258 As mentioned earlier in the report, persistently high health care costs and the weak economy resulted in one of the biggest drops ever observed in hospital admissions nationally in 200. St. Louis hospitals experienced an even larger decrease of 3%. This marked the first decline after years of flat utilization growth in the St. Louis hospital market. Multiple factors are responsible for the decrease in excess capacity in the St. Louis market. These factors include transitions to more private rooms and the closures of some struggling hospitals. The graph to the left shows excess available beds by hospital network in 200 based on data from Medicare Cost Reports. Tenet Health System and SSM Health Care s excess beds declined 4% and 34% respectively over 2009 as beds were reduced and utilization increased. For years, SSM has been converting semi-private rooms to private rooms across the system. Declining patient volume and revenue at St. Alexius-Forest Park hospital resulted in the closure of the majority of its inpatient beds in 200. As this report went to press, this hospital was slated for closure. Excess capacity was reduced further with the closure of Kenneth Hall Regional Hospital in the metropolitan St. Louis Illinois region in In contrast to the others, Mercy had among the largest increases in excess beds, 27%, as a result of a steep decline in utilization. The table below shows utilization in the St. Louis hospital market by payer group: Medicare, Medicaid, and Other (privately insured and uninsured). Medicare and Other discharges decreased.3% and 6.6% respectively, while Medicaid discharges grew 2.2% due to the effects of the weak economy. Despite declining inpatient utilization, St. Louis hospitals reported outpatient volume rose from the massive expansion of those services in recent years. Excess capacity on outpatient services cannot be assessed since data are not disclosed. With more expansion expected, understanding outpatient excess capacity and cost is imperative as it will affect the access and affordability of health care for all consumers in the future Discharges Medicare 56,330 62,700 6,665 67,385 74,738 7,875 69,867 73,200 69,972 67,84 Medicaid 56,924 59,78 64,06 65,926 64,037 63,467 67,233 68,946 69,534 7,084 Other 58,28 60,464 63,22 62,236 62,422 68,09 60,450 6,23 66,503 55,460 Total 37, , , ,547 40,97 403, , , , ,385 Inpatient Days Medicare 904,59 952, , ,59,002, ,038 96,725 98,307 94, ,784 Medicaid 28,6 308, , , ,42 325, , ,66 360, ,382 Other 656, , , , ,704 67,09 670,0 655,54 667, ,62 Total,842,083,90,726,964,92,999,583 2,00,556,984,992,977,692,995,509,970,474,944,328 Avg. Length of Stay 2 Medicare Medicaid Other Total # of Hospitals Sources: Centers for Medicare and Medicaid Services Medicare Cost Reports and internal utilization statements. Hospital network configurations are current as of 20. Utilization categories are defined as ) Medicare managed care (starting in 997) and fee for service (indemnity) programs, 2) Medicaid managed care and traditional programs, and 3) Other, including commercially insured, and the uninsured. Changes to previously reported data are based on the most current information. 2 Kindred Hospital is excluded from average length of stay because it is a long-term acute care hospital. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 7

20 Public Sector Financing 3.0% 2.0%.0%.8% Hospitals charity and community benefit information now reported to the IRS.4%.7%.9% Charity Care as a Percentage of Operating Revenue, %.42%.58%.76%.99% 2.29% 2.33% Missouri Hospitals Only 2.27% St. Louis hospital charity care increased 5% in 200. Charity care has risen steadily since 2005 coinciding with intense national scrutiny on hospital charity care policies. % BHC 200 MHA 200 Source: Centers for Medicare and Medicaid Services Medicare Cost Reports, audited financial statements, internal financial statements, the Missouri Hospital Association (MHA) website missourihealthmatters.com, and MHA/AHA Annual Licensing Surveys. Non-profit hospitals are required to provide community benefit in exchange for not paying taxes. However, the federal government has never clearly defined how much charity care hospitals must provide. Charity care as a percentage of operating revenue reported by St. Louis hospitals increased to 2.29% in 200, up from.99% in This was expected, given the difficult economy. Eleven hospitals provided charity care above 3% of operating revenue as compared to nine hospitals in Five of those hospitals were members of the SSM Health Care system, and noteworthy by its lead, Touchette Regional Hospital provided charity care equal to.5% of operating revenue, well in excess of any other hospital. As in past years, BHC reports charity care higher than MHA due to certain methodological differences in how MHA determines charity care cost. Two significant regulation changes in recent years attempt to provide greater accountability and transparency in charity care and community benefit reporting. The Accountable Care Act (ACA) set forth requirements for non-profit hospitals to retain their tax-exempt status. Hospitals are limited in the amounts patients can be charged (i.e., gross charges are prohibited) and they cannot engage in extraordinary collection actions (i.e., lawsuits and liens) prior to determining a patient s eligibility for financial assistance. Hospitals must also conduct a community health needs assessment (CHNA) every three years and report how it has met the needs identified in the CHNA. The IRS will impose an excise tax of $50,000 if a hospital fails to comply with the provisions. In 2009, non-profit hospitals began reporting more detailed information on the criteria for qualifying for financial assistance, the levels of charity care provided, how much the hospital lost on bad debt expense, adequacy of public program revenue and community building efforts to protect and improve the community s health and safety. The information is included on Schedule H of the annual IRS Form 990 return for non-profit hospitals. St. Louis hospitals most current IRS Form 990s indicate most require a patient s income to be at or below 200% of the federal poverty level (FPL) to receive free care. This would be $2,780 in annual income for individuals or $44,700 for a family of four. To receive a discount for hospital care, income requirements varied between 200% and 600% of the FPL. Spending on community building efforts among St. Louis hospitals ranged from 0% to just under % of expenses. Non-profit St. Louis hospitals are not subject to federal income and capital gains taxes; state, and local property taxes; and state and local sales taxes on purchases. Determining the value of these tax-exemptions is extremely complex. Yet, a recent report published last year estimated that St. Louis County forgoes more than $20 million in property taxes alone each year based on non-profit health systems land and capital improvements, and, as noted above these are only one piece of the forgone revenue. This lost revenue compromises governments ability to pay for needed services such as public safety and education and it contributes to a higher tax burden on businesses, families and individuals. Non-profit hospitals charitable missions form the basis of their compact with their communities. They will likely continue to be an intense area of focus. J Doyle, St. Louis County property tax exemptions worth $20 million to hospitals, St. Louis Post-Dispatch, October 23, St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

21 Charity care profile & Disproportionate share payment (DSH) by network BHC Charity BHC Charity MHA Charity Missouri Missouri MO DSH MO DSH Operating Operating cost as % cost as % cost as % DSH DSH as % of as % of System Name Revenue (000) Revenue (000) of op. rev. of op. rev of op. rev (000)3 (000)3 op. rev. 3 op. rev. 3 BJC HealthCare 2 Alton Memorial Hospital $0,734 9, % 2.27% 4.03% NA NA NA NA Barnes-Jewish Hospital,36,9,460,060.98% 2.33% 2.3% $6,04 $27, % 8.72% Barnes-Jewish Hospital - St. Peters 4,422 4,022.5%.33% 2.63% 4,363 4, % 3.0% Barnes-Jewish Hospital - West County 89,947 99, % 0.76% 0.95%,284,464.43%.47% Christian Hospitals 262,06 260, % 4.75% 6.78% 8,399 2, % 8.35% Missouri Baptist Hospital - Sullivan 4,859 43, % 6.97% 6.79% 2,520 2, % 6.38% Missouri Baptist Medical Center 426, , % 0.90%.53% 9,052 9, % 2.27% Progress West HealthCare Center 44,636 49,29.39% 2.32%.66%,35,5 3.03% 3.07% St. Louis Children s Hospital 47, , % 0.74% 6% 59,340 63, % 4.87% Network Total $2,897,02 $3,037,203.67% 2.07% 2.27% $22,43 $232, % 7.65% SSM Health Care Cardinal Glennon Hospital 3 $235,86 247, % 0.54% 0.55% NA3 NA3 NA3 NA3 DePaul Health Center 28,32 298, % 3.87% 3.80% $23,4 $24, % 8.3% St. Clare Health Center 2,629 65, % 3.40% 3.28% 6,777 7, % 4.50% St. Joseph Health Center - St. Charles 29, , % 3.00% 2.98% 2,330, % 5.63% St. Joseph Hospital West - Lake St. Louis 07,679 8, % 3.23% 3.8% 6,284 7, % 6.26% St. Mary s Health Center 3 277, , % 3.42% 3.40% 65,46 68, % 23.82% Network Total $,234,662 $,38, % 2.90% 2.86% $3,948 $8, % 9.02% Mercy Mercy Hospital St. Louis $804,244 $82, % 2.78% 2.8% $48,346 $49, % 6.6% Mercy Hospital Washington 04,532 96, % 5.98% 5.55% 8,934 9, % 9.63% Network Total $908,776 $908, % 3.2% 3.0% $57,280 $59, % 6.52% Tenet HealthSystem Des Peres Hospital $34,458 3, % 0.82% 0.9% $6,678 $6, % 5.2% St. Louis University Hospital 326,83 345, % 2.37% 2.% 39,800 45,39 2.8% 3.3% Network Total $46,289 $477,334.72%.94%.58% $46,477 $52,258 8% 0.95% Missouri Non-Merged Jefferson Regional Medical Center $27,806 30, % 0.78% 0.72% $7,25 $7, % 5.65% Kindred Hospital 5 32,059 29,799 0% NA 0% 3,27 2, % 2% Lincoln County Memorial Hospital 28,930 33,96.0% NA.3%,249, % 4.72% St. Alexius Hospital-Broadway Campus 4,5 76,076 86, % 0.44% NA 7,883 7, % 20.5% St. Alexius Hospital-Forest Park Campus 4,5 64,668 20, % 9% NA 28, % 0% St. Anthony s Medical Center 427, ,279.50% 2.05%.89% 7,456 7, % 3.88% St. Luke s Hospital 385,597 44, % 0.97% 0.93% 7,607 7,6.97%.73% Total $,43,8 $,53, % 5.29% 5.30% 5 $83,053 $53,8 7.27% 4.67% Illinois Non-Merged Anderson Hospital $30,074 29,380.39%.36%.2% NA NA NA NA Gateway Regional Medical Center 0,070 93,503 NA 0.64% 3.92% NA NA NA NA Memorial Hospital (Belleville) 24, ,22.0% 0.76%.28% NA NA NA NA St. Anthony s Health Center (Alton) 6 95,893 98, % 3.05% 2.23% NA NA NA NA St. Elizabeth s Hospital (Belleville) 92,698 89, % 3.42% 3.0% NA NA NA NA St. Joseph Hospital (Breese) 44,524 46,589 NA 0.62%.26% NA NA NA NA Touchette Regional Hospital 6 64,83 63, %.52% 5.82% NA NA NA NA Total $879,704 $867, % 5 2.8% % NA NA NA NA Aggregate for St. Louis Hospitals $7,524,65 $7,76,955.99% % 5 2.3% 5 $53,72 $56, % 7.49% BHC Charity care cost is the product of charity care gross charges times the cost-to-charge ratio. 200 Missouri Hosp. Assoc. (MHA) charity care cost is reported on the website; MHA did not publish 2009 charity care cost for Missouri hospitals. 200 Illinois charity care expense in the MHA column was obtained from the Illinois Health Facilities and Services Review Board. 2 BJC HealthCare charity care charges include an unspecified mix of full charge and discounted amounts. When the cost-to-charge ratio is applied, charity care costs may be understated. 3 Disproportionate share payment (DSH) data obtained from the Missouri Department of Social Services. DSH payments are combined for Cardinal Glennon and St. Mary s Health Center. 4 In December of 2008, Forest Park and St. Alexius Hospitals were acquired by Success Healthcare. In 2009, Forest Park was renamed St. Alexius Hospital-Forest Park Campus. 5 Operating revenue for Kindred, Gateway Regional, St. Alexius and St. Joseph Breese hospitals was excluded from 2009 and 200 figures when charity care was not reported. 6 Kenneth Hall and Touchette Regional Hospitals reported on a consolidated basis in Kenneth Hall closed after St. Anthony s Hospital and St. Clare s Hospital report on a consolidated basis. Sources: CMS Medicare Cost Reports, audited financial statements, and AHA/MHA Licensing Surveys. Note: In order to assess a hospital s charitable commitment, it is necessary to evaluate ) Charity care performance, 2) Bad debt expense, 3) Case-mix (especially as it relates to the Medicaid population), and 4) Other charitable programs in which significant allowances and discounts are provided. All figures are not adjusted for inflation. Changes in previously reported data are based on most current information available including numerous restatements. Hospital network configurations are current as of 202. St. Louis Area Business Health Coalition St. Louis Health Care Industry Overview, 202 9

22 Technical Notes Fiscal Year 20 Financial Data (000) Fiscal Total Total Operating Total Gain from Net Operating Profit St. Louis Area Hospitals Year Revenue Revenue Expenses* Operations Profit Margin Margin Mercy ** Mercy Hospital St. Louis 6/30 $805,826 $804,837 $752,376 $52,46 $53, % 6.63% Mercy Hospital Washington 6/30 88,404 88,369 93,875-5,507-5, Total $894,229 $893,206 $846,25 $46,954 $47, % 5.37% Other St. Anthony s Medical Center 6/30 $484,903 $473,480 $468,330 $5,50 $6,573.09% 3.42% St. Elizabeth s Hospital (Belleville, IL) 6/30 75,028 69,608 95,23-25,622-20, St. Joseph Hospital (Breese, IL) 6/30 58,364 48,582 45,726 2,856 2, St. Luke s Hospital 6/30 44,05 439,233 49,989 9,244 2, Total $,59,30 $,30,903 $,29,276 $,628 $30, % 2.59% * Total Expenses include non-operating expenses that may have an effect on profit margins. Non-operating expenses are not used in the calculation of operating margins. ** Mercy Health (f/k/a Sisters of Mercy Health System) is the parent organization for Mercy. Caution must be used when evaluating net profit and profit margins for individual Mercy Health hospitals since they do not fully reflect investment gains and losses from Mercy Health. Hospital Financial Data The St. Louis Area Business Health Coalition (BHC) has analyzed hospital financial data for the last 29 fiscal years. Data for these analyses are gathered from hospital audited financial statements, licensing surveys and Centers for Medicare and Medicaid Services Medicare Cost Reports (MCR). The resulting reports are based upon standard accounting assumptions and procedures. A financial profile is produced for each institution which is then verified by the individual institutions. When an individual institution disagrees with the financial profile, supporting documentation is submitted before changes are made to the profile. From the individual reports, aggregate tables are produced reflecting St. Louis area Missouri hospitals and St. Louis area Illinois hospitals. In some situations, prior year data are updated based on revised MCR and/or current hospital audited financial statements. As a result, the data presented in this document reflect the most current information available to the BHC and may differ from previous reports. Financial Formulas (For Leap years: Use 366 for all formulas using days) OPERATING MARGIN (Total Operating Revenue - Operating Expenses) Total Operating Revenue OCCUPANCY Patient Days PERCENTAGE Number of Beds x 365 PROFIT MARGIN Excess of Revenue Over Expenses (Total Operating Revenue + Non-operating Revenue) RETURN ON EQUITY Excess of Revenue Over Expenses Fund Balance [ ] MARK-UP PERCENT Total Gross Charges Total Operating Expense - ALLOWANCES AS Allowances PERCENT OF Total Gross Charges CHARGES COST TO CHARGE RATIO Total Operating Expenses Total Gross Charges Calculation Methodology for Excess Available Acute Care Inpatient Beds (200). Total Bed Days Used*,944, Total Beds Used Per Day 5,327 80% Occupancy Total Available Beds Minus Available Beds Required for 80% Occupancy 9,056 6,659 = Excess Capacity (200) 2,397 * Total Bed Days Used = Inpatient Days 20 St. Louis Health Care Industry Overview, 202 St. Louis Area Business Health Coalition

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