Hospital Operating Margins Continue Slide in Q4 of 2017

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1 FOR IMMEDIATE RELEASE Philip Schmidt Associate Vice President for Public Affairs Oregon Association of Hospitals and Health Systems Hospital Operating Margins Continue Slide in Q4 of 2017 March 8, 2018 As Oregon s community hospitals costs continued to increase relative to revenues, operating margins continued their downward trend, landing at a median of -0.8 percent, which was among the lowest tallied in dozens of years. According to the newly-released quarterly report by Apprise Health Insights on acute care hospitals financial and utilization trends, hospital finances statewide are under increasing pressure due to a variety of factors, including market shifts toward outpatient services along with the cost pressures and others. Hospitals aggregate operating margin of -0.8 percent in the fourth quarter of 2017 was lower by more than half a percentage point than the same quarter in 2016 when it was -0.2 percent. The Q operating margin of -0.8 percent is the lowest since Q1 2014, and the second-lowest since Apprise Health Insights began collecting this data in The quarter continued the annual decreases in overall operating margins seen over the past several years following a brief spike after the full implementation of the Affordable Care Act. Meanwhile, charity care is at its highest level since Q Median charity care as a percentage of total charges has been steadily increasing after the post-aca expansion drop. Five of the last six quarters have seen increases in seasonally-adjusted charity care. Q is the largest charity care percentage since Q Inpatient discharges continued their downwards trend, decreasing by nearly 1,500 discharges per year for the past two years. At the same time, outpatient visits continued in a sharp upwards trend, with 2.92 million visits in Q4 of 2017 compared with 2.74 million visits in the same period of Additionally, the rate of increase in the last three quarters of 2017 has been much higher than usual, climbing by climbing by an average of 140,000 visits each quarter. Oregon s community hospitals are in a uniquely difficult set of financial circumstances due to a variety of marketplace pressures, said Andy Van Pelt, executive vice president of the Oregon Association of Hospitals and Health Systems. Noting that this trend holds for hospitals large and small, urban and rural, system or standalone, shows that this is a larger trend which hospitals are navigating. We know that costs have risen compared to revenues, but other factors are also at play. With this outlook, it s more important than ever that policymakers and hospitals work collaboratively to ensure the financial soundness of the health care system in Oregon. The continued year-over-year increase in charity care stands in contrast to the prevailing policy narrative that charity care has been all but eliminated in Oregon due to the Affordable Care Act. It also shows that the belief that hospitals should do more community benefit is disconnected from the data showing that indeed they

2 are doing more. And while charity care is still substantially below its pre-aca levels, it has marched upwards over time and shows that the demand for free and reduced-price services is an ongoing issue statewide. It is important to note that after a drop in uncompensated care spending in 2014, in 2015 hospitals announced a community benefit pledge to maintain, or increase, the amount they spend on community benefit, despite a drop in uncompensated care. Hospitals successfully worked in the 2018 Legislative Session to pass legislative language to ensure financial assistance notification practices at every hospital meet patients needs and all those who need financial assistance are aware of its availability. Oregon s hospitals are navigating a very challenging financial situation and yet they are maintaining their deep commitment to community benefit, including charity care. We know our hospitals will continue to maintain their core commitment to giving back to their communities through these services, added Van Pelt. To read the entire report, visit OregonHospitalGuide.org under Understanding the Data or click this link: pdf ### About OAHHS: Founded in 1934, OAHHS is a statewide, nonprofit trade association that works closely with local and national government leaders, business and citizen coalitions, and other professional health care organizations to enhance and promote community health and to continue improving Oregon s innovative health care delivery system. Apprise Health Insights is the premier resource for hospital and health system data and analytics in the Pacific Northwest. As the data subsidiary of the Oregon Association of Hospitals and Health Systems, Apprise is uniquely positioned to collect hospital and health system data, and provide the meaningful analysis essential for informed decision-making.

3 March 8, Kruse Way Place Suite 100 Lake Oswego, OR Tel: (503) APPRISE HEALTH INSIGHTS IS A SUBSIDIARY OF THE OREGON ASSOCIATION OF HOSPITALS AND HEALTH SYSTEMS

4 ABOUT THIS REPORT This report aims to provide a quarterly analysis of the utilization and financial data submitted by Oregon s hospitals to the DATABANK program. DATABANK is a state-mandated monthly hospital data program administered by Apprise Health Insights in collaboration with the Office for Oregon Health Policy and Research (OHPR). Please note that all DATABANK data are self-reported by the hospital and represent a twelve-month calendar year. Accuracy is the responsibility of the reporting hospitals. Because this report s objective is to provide a complex dive into the data, the graphs and methods may change between reports. This forces only the most compelling stories to be exhibited. The determination of which graphs and stories to focus on is evaluated by hospital finance and data experts at Apprise. Note: Kaiser Sunnyside and Kaiser Westside hospitals are excluded from this analysis due to the lack of financial data available in DATABANK. LAYOUT INFORMATION Aggregate vs Median This report uses two statistics to report statewide hospital data: median and aggregate. Aggregate numbers sum up the entire amount for all hospitals into one number, where median only takes the number from the middle of the pack. Aggregate is useful when looking at the industry as a whole, such as the percent of Medicaid charges or the total number of patients visiting Emergency Departments in the state. Median is useful when outliers can be highly-influential on a statistic, such as a large hospital having a significant negative margin dragging down the statistic for the whole state. Apprise tries to conform to the Oregon Health Authority s Office of Health Analytics on the subject as much as possible: Trend vs Seasonal-Adjusted Each metric in this report contains two graphs: a trend analysis and a seasonal-adjusted graph. The trend analysis is a simple line graph that shows how the metric has changed over time linearly. However, because many of these metrics tend to be affected largely by seasonal influences, the seasonal-adjusted graph shows a comparison of each quarter to the same quarter in the previous two years. 2

5 QUICK STATS 1. Operating Margins continue to decrease to historic lows 2. Medicaid Payer Mix continues to decrease 3. Medicare Payer Mix continues to increase 4. Charity Care is at its highest level since Q Outpatient Visits have increased sharply in the last three quarters of 2017 Notes for the Q Report -The numbers and figures in this report are based on a DATABANK download from March 7, Grande Ronde Hospital s data was not available at the time of report extraction. It has been filtered from all metrics on this report. -The axes on many of the line graphs on this report have been adjusted to start from a non-zero number. Although this can distort the size of the relative shifts in the data, it is a better way to show minute fluctuations for metrics with little variation. The seasonal-adjusted graphs are included as bar graphs and will continue to stay anchored at zero. This way both the trend and relative size of it are displayed. 3

6 TABLE OF CONTENTS Operating Margin...Page 4 Net Patient Revenue...Page 4 Payer Mix...Page 5 Charity Care...Page 7 Bad Debt...Page 7 Inpatient Discharges...Page 8 Total Outpatient Visits...Page 8 Ambulatory Surgery Visits...Page 9 Emergency Department Visits...Page 9 Appendix A: Regions...Page 10 Appendix B: Hospital Types...Page 11 Appendix C: Definitions...Page 12 4

7 OPERATING MARGIN Measure of profitability from the reporting entity s operations Median Operating Margin continues to decrease, both in overall trend and seasonally-adjusted (Figures 1 & 2). The Q Margin of -0.8% is the lowest since Q1 2014, and the second-lowest since the DATABANK program began in % 4% 3% 3.3% 2% 5.1% 2.9% 2.7% Operating Margin Percent (Median) 3.8% 5.3% 3.0% 4.0% 2.4% 5% 4% 3% 2% 3.3% Operating Margin Percent (Median, Seasonal Adjustment) 3.8% 5.1% 5.3% 4.0% 2.9% 3.0% 2.4% 2.7% 1% 1% 0% -1% 0% -0.2% -0.2% -1% -0.8% -0.8% Figure 1 Figure 2 NET PATIENT REVENUE The revenue the reporting entity generates from patient care Aggregate Net Patient Revenue (NPR) increased from Q as well as Q (Figures 3 & 4). This follows the consistent trend of Net Patient Revenue increasing slowly over time. 3.1B Net Patient Revenue Net Patient Revenue 3.0B 2.9B 2.91B 2.98B 3.0B 2.5B 2.55B 2.75B 2.80B 2.63B 2.79B 2.91B 2.61B 2.75B 2.88B 2.74B 2.83B 2.98B 2.8B 2.7B 2.63B 2.74B 2.79B 2.75B 2.75B 2.83B 2.80B 2.88B 2.0B 1.5B 2.6B 2.61B 1.0B 2.55B 2.5B 0.5B 2.4B 0.0B Figure 3 Figure 4 5

8 25% 23.3% 23.4% 22.4% 23.3% 23.0% 22.4% 23.4% 22.7% Q HOSPITAL UTILIZATION AND FINANCIAL ANALYSIS MEDICAID PAYER MIX The amount of total charges that were attributable to Medicaid Aggregate Medicaid Payer Mix continues to decrease (Figures 5 & 6). The past seven quarters have all seen decreases in seasonally-adjusted Medicaid payments. 24% Medicaid Payer Mix Medicaid Payer Mix 23.3% 23.4% 23.4% 22.2% 22.5% 21.9% 21.8% 23.3% 20% 23% 22.5% 23.0% 22.7% 22.4% 22.4% 22.2% 15% 22% 10% 21.9% 21.8% 5% 21% 0% Figure 5 Figure 6 MEDICARE PAYER MIX The amount of total charges that were attributable to Medicare Aggregate Medicare Payer Mix continues to increase (Figures 7 & 8). Seven of the past eight quarters have seen decreases in seasonally-adjusted Medicare payments. 45% Medicare Payer Mix 44.7% Medicare Payer Mix 43.3% 43.0% 44.7% 42.9% 43.1% 43.7% 42.5% 42.8% 43.7% 42.8% 43.2% 44.1% 44.1% 40% 44% 43.3% 43.7% 43.7% 30% 43% 42.9% 42.8% 43.0% 43.1% 43.2% 20% 42.8% 10% 42.5% 42% 0% Figure 7 Figure 8 6

9 COMMERCIAL & OTHER PAYER MIX The amount of total charges that were attributable to a commercial insurer or other payer Aggregate Commercial & Other Payer Mix remains fairly stable at approximately 32% (Figures 9 & 10). 34% 33% Commercial & Other Payer Mix 33.0% 33.0% 35% 30% Commercial & Other Payer Mix 31.5% 31.9% 31.0% 32.0% 32.1% 32.2% 32.3% 32.5% 32.1% 33.0% 33.0% 32.1% 32.0% 32.3% 32% 31.5% 31.9% 32.5% 32.2% 32.1% 32.1% 32.1% 25% 20% 15% 31% 31.0% 10% 5% 30% 0% Figure 9 Figure 10 SELF PAY PAYER MIX The amount of total charges that were attributable to patients paying primarily out-of-pocket Aggregate Self Pay Payer Mix remains fairly stable at approximately 2% (Figures 11 & 12) 2% 1.8% 1.9% 1.8% Self Pay Payer Mix 1.8% 2.1% 1.9% 1.8% 2.0% 2.0% 2% 1.8% Self Pay Payer Mix 1.7% 1.8% 1.7% 1.8% 1.7% 1.9% 2.1% 2.0% 1.8% 1.9% 2.0% 1.7% 1.7% 1.7% 1% 1% 0% Figure 11 Figure 12 7

10 CHARITY CARE PERCENTAGE The amount of of free care provided to patients who are determined by the hospital to be unable to pay their bill Median Charity Care as a percentage of Total Charges has been steadily increasing after the post-expansion drop (Figures 13 & 14). Five of the last eight quarters have seen increases in seasonally-adjusted Charity Care. Q is the largest Charity Care percentage since Q Charity Care Percentage (Median) 1.9% 2% Charity Care Percentage (Median, Seasonal Adjustment) 1.9% 1% 1.3% 1.2% 1.1% 1.5% 1.0% 1.1% 1.1% 1.4% 1.4% 1.5% 1.3% 1% 1.3% 1.0% 1.4% 1.2% 1.1% 1.5% 1.1% 1.1% 1.3% 1.5% 1.4% Figure 13 0% Figure 14 BAD DEBT PERCENTAGE Unpaid obligation for care from patients who have not requsted or do not qualify for financial assistance and have been unwilling to pay their bill Median Bad Debt remains fairly stable at approximately 1% (Figures 15 & 16). 1.2% Bad Debt Percent (Median) Bad Debt Percent (Median, Seasonal Adjustment) 1.2% 1% 0.8% 0.8% 1.0% 1.0% 1.1% 1% 0.7% 0.7% 0.8% 1.0% 1.1% 0.8% 1.0% 0.7% 0.7% Figure 15 0% Figure 16 8

11 TOTAL DISCHARGES The total number of inpatient discharges during the reporting period Aggregate Inpatient Discharges continue to decrease slightly over time (Figures 17 & 18). 83K Total Discharges Total Discharges 82K 81.4K 81.2K 80K 70K 81.1K 80.8K 81.2K 81.4K 79.9K 80.0K 79.9K 78.8K 78.6K 79.3K 80.6K 80.7K 81K 81.1K 80.8K 80.6K 80.7K 60K 80K 79.9K 79.9K 80.0K 50K 40K 79K 78K 79.3K 78.8K 78.6K 30K 20K 10K 77K 0K Figure 17 Figure 18 TOTAL OUTPATIENT VISITS The total number of outpatient visits during the reporting period Aggregate Total Outpatient Visits continue to increase over time (Figures 19 & 20). The rate of increase in the last three quarters of 2017 has been much higher than usual. 3.1M Total Outpatient Visits Total Outpatient Visits 3.0M 2.94M 2.92M 3.0M 2.5M 2.66M 2.79M 2.81M 2.73M 2.82M 2.94M 2.69M 2.74M 2.88M 2.71M 2.74M 2.92M 2.9M 2.8M 2.7M 2.66M 2.73M 2.69M 2.79M 2.71M 2.82M 2.74M 2.74M 2.81M 2.88M 2.0M 1.5M 1.0M 2.6M 0.5M 2.5M 0.0M Figure 19 Figure 20 9

12 AMBULATORY SURGERY VISITS The total number of ambulatory surgery visits during the reporting period Aggregate Ambulatory Surgery Visits are highly seasonal, with counts typically much higher in Q2 and Q4 (Figures 21 & 22). The overall trend seems to be stable at 45-50K. 52K Ambulatory Surgery Visits Ambulatory Surgery Visits 51K 50K 49.5K 50.2K 50.2K 50.6K 50K 44.7K 47.6K 47.1K 48.4K 49.5K 50.2K 46.1K 47.8K 45.8K 48.2K 50.2K 50.6K 49K 48K 47K 48.4K 48.2K 47.6K 47.8K 47.1K 40K 30K 46K 45K 46.1K 45.8K 20K 44K 44.7K 10K 43K 0K Figure 21 Figure 22 EMERGENCY DEPARTMENT VISITS The total number of patients seen in the emergency department who are not later admitted as inpatients Aggregate Emergency Department Visits continue to decrease when looking at the seasonal adjustment (Figures 23 & 24). Six of the last eight quarters have shown decreases in seasonally-adjusted ED visits. 345K Emergency Room Visits 341.8K Emergency Room Visits 340K 339.1K 338.5K 350K 330.7K 341.8K 329.0K 339.1K 338.5K 333.2K 332.5K 332.3K 331.2K 317.7K 325.9K 325.1K 300K 335K 330K 330.7K 332.5K 332.3K 329.0K 333.2K 331.2K 250K 200K 325K 325.9K 325.1K 150K 320K 100K 315K 317.7K 50K 310K 0K Figure 23 Figure 24 10

13 APPENDIX A: REGIONS Central Oregon: Mid-Columbia Medical Center, Providence Hood River Memorial Hospital, St. Charles Bend, St. Charles Madras, St. Charles Prineville, St. Charles Redmond Eastern Oregon: Blue Mountain Hospital, CHI St. Anthony Hospital, Good Shepherd Medical Center, Grande Ronde Hospital, Harney District Hospital, Lake District Hospital, Pioneer Memorial Hospital-Heppner, St. Alphonsus Medical Center-Baker City, St. Alphonsus Medical Center-Ontario, Wallowa Memorial Hospital Northwest Oregon: Columbia Memorial Hospital, Providence Newberg Medical Center, Providence Seaside Hospital, Samaritan North Lincoln Hospital, Samaritan Pacific Communities Hospital, Tillamook Regional Medical Center, Willamette Valley Medical Center Portland Metro Area: Adventist Medical Center, Legacy Emanuel Medical Center, Legacy Good Samaritan Medical Center, Legacy Meridian Park Medical Center, Legacy Mount Hood Medical Center, OHSU, Providence Milwaukie Medical Center, Providence Portland Medical Center, Providence St. Vincent Medical Center, Providence Willamette Falls Medical Center, Shriners Hospital-Portland, Tuality Healthcare Southern Coast: Bay Area Hospital, Coquille Valley Hospital, Curry General Hospital, Lower Umpqua Hospital, Southern Coos Hospital & Health Center Southern Oregon: Asante Ashland Community Hospital, Asante Rogue Regional Medical Center, Asante Three Rivers Medical Center, Mercy Medical Center, Providence Medford Medical Center, Sky Lakes Medical Center Valley: Good Samaritan Regional Medical Center, Legacy Silverton Medical Center, McKenzie-Willamette Medical Center, PeaceHealth Cottage Grove Community Hospital, PeaceHealth Peace Harbor Hospital, Peace- Health Sacred Heart Medical Center at RiverBend, PeaceHealth Sacred Heart Medical Center University District, Salem Hospital, Samaritan Albany General Hospital, Samaritan Lebanon Community Hospital, Santiam Memorial Hospital, West Valley Hospital 11

14 APPENDIX B: HOSPITAL TYPES Urban Rural DRG Hospitals Type A Hospitals Type B Hospitals Adventist Health Portland Asante Rogue Regional Medical Center Asante Three Rivers Medical Center Bay Area Hospital Good Samaritan Regional Medical Center Legacy Emanuel Medical Center Legacy Good Samaritan Medical Center Legacy Meridian Park Medical Center Legacy Mount Hood Medical Center McKenzie-Willamette Medical Center Mercy Medical Center OHSU Hospital PeaceHealth Sacred Heart Medical Center at RiverBend PeaceHealth Sacred Heart Medical Center University District Providence Medford Medical Center Providence Milwaukie Hospital Provicence Portland Medical Center Providence St. Vincent Medical Center Providence Willamette Falls Medical Center Salem Hospital Samaritan Albany General Hospital Shriners Hospital-Portland Sky Lakes Medical Center St. Charles Bend Tuality Healthcare Willamette Valley Medical Center Blue Mountain Hospital* CHI St. Anthony Hospital* Curry General Hospital* Good Shepherd Medical Center* Grande Ronde Hospital* Harney District Hospital* Lake District Hospital* Pioneer Memorial Hospital-Heppner* St. Alphonsus Medical Center-Baker City* St. Alphonsus Medical Center-Ontario Tillamook Regional Medical Center* Wallowa Memorial Hospital* Asante Ashland Community Hospital Columbia Memorial Hospital* Coquille Valley Hospital* Legacy Silverton Medical Center Lower Umpqua Hospital* Mid-Columbia Medical Center PeaceHealth Cottage Grove Community Hospital* PeaceHealth Peace Harbor Medical Center* Providence Hood River Memorial Hospital* Providence Newberg Medical Center Providence Seaside Hospital* Samaritan Lebanon Community Hospital* Samaritan North Lincoln Hospital* Samaritan Pacific Communities Hospital* Southern Coos Hospital & Health Center* St. Charles Prineville* St. Charles Madras* St. Charles Redmond West Valley Hospital* Type A Hospitals are small and remote and have 50 or fewer beds. Type A hospitals are located more than 30 miles from another acute care, inpatient facility. Type B Hospitals are small and rural and have 50 or fewer beds. Type B Hospitals are located 30 miles or less from another acute care facility *Designates a CAH facility (more information in Appendix C: Definitions) 12

15 APPENDIX C: DEFINITIONS Bad Debt: Bad debt is the unpaid obligation for care, based on a hospital s full established rates, for patients who are unwilling to pay their bill. Unlike charity care, bad debt arises in situations where the patient has either not requsted financial assistance or does not qualify for financial assistance. In these cases the hospital will generate a bill for services provided. For uninsured patients, the amount of bad debt can pertain to all or any portion of the bill that is not paid. For patients with insurance, certain amounts that are the patient s responsibility such as deductibles and coinsurance are expensed as bad debt if not paid. Charity Care: The dollar amount of free care, based on a hospital s full established rates, provided to patients who are determined by the hospital to be unable to pay their bill. The determination of a patient s ability to pay is based on the hospital s charity care policy. Hospitals will typically determine a patient s inability to pay by examining a variety of factors such as individual and family income, assets, employment status, or availability of alternative sources of funds. Determination of charity care status is made prior to admission if the patient has requested and applied for financial assistance. Charity care status may be granted at a later date depending on the circumstances of the admission, such as an emergency admission, no request for financial assistance prior to admission, or lack of information about the patient s financial status at the time of admission. Financial assistance provided by the hospital may pertain to all or a portion of the patient s bill. Critical Access Hospitals (CAHs): A designation given to certain rural hospitals by the Centers for Medicare and Medicaid Services. Created by Congress in the 1997 Balanced Budget Act, the CAH designation is designed to reduce the financial vulnerability of rural hospitals and improve access to healthcare in those areas. A CAH must have no more than 25 inpatient beds, maintain an annual average length of stay of less than 96 hours, offer 24/7 emergency care, and be located at least 35 miles away from another hospital. Emergency Department Visits: The total number of patients seen in the emergency department who are not later admitted as inpatients. Net Nonoperating Gains: Amount of income or loss after expenses which result from the hospital s peripheral or incidental transactions and from other events stemming from the environment that may be largely beyond the control of the reporting entity and its management. An example would be sale of investments in marketable securities. Net Patient Revenue: The revenue the reporting entity generates from patient care. Operating Margin Percent: Measure of profitability from the reporting entity s operations. Other Operating Revenue: Revenue derived from the reporting entity s operations other than direct patient care. Examples are revenue generated from operation of the cafeteria and gift shop. Outpatient Surgeries: A planned operation for which the patient is not expected to be admitted to the hospital. Outpatient Visits: Total number of outpatient visits reported during the reporting period. This includes emergency room visits, ambulatory surgery visits, observation visits, home health visits, and all other visits. Payer Mix: The amount of total charges that were attributable to one of four payer categories: Medicaid, Medicare, commercial, and self pay. Reporting Entity: A hospital and any additional consolidated entities that are included in the Income Statement at the front of the audited financial statement. The only exceptions are foundations that the hospital does not want included in its financial reporting. 13

16 APPENDIX C: DEFINITIONS (CONT.) Tax Subsidies: Tax revenues from cities, counties or special hospital districts, which assess levies to subsidize the reporting entity. Total Charges: Amount billed for services at full established rates. Total Contractuals: The amount of total charges that have been negotiated away by payers. This is the difference between what the hospital bills for and what it expects to receive as revenue. Total Discharges: The termination of the granting of lodging in the hospital and the formal release of the patient (includes patients admitted and discharged the same day). When a mother and her newborn are discharged at the same time, they count as one discharge. When the baby stays beyond the mother s discharge (boarder baby), it counts as one discharge for the mother and one discharge for the boarder baby. Total Margin Percent: Measure of profitability from all sources of the reporting entity s income. Total Operating Expenses: All expenses incurred from the reporting entity. Examples are salaries and benefits, purchased services, professional fees, supplies, interest expense, depreciation, and amortization and rent and utilities. Total Operating Revenue: All revenue derived from the reporting entity s operations directly related to patient care. Includes net patient revenue and other operating revenue. Uncompensated Care: The total amount of health care services, based on full established rates, provided to patients who are either unable or unwilling to pay. Uncompensated care includes both charity care and bad debt. 14