Dallas-Fort Worth Hospitals Keep Racking Up The Big Bucks
Hospitals are facing more financial pressure as inpatient stays get shorter, the number of uninsured ticks up and payers push for more value-based care.
More than a dozen rural hospitals in Texas have closed since 2010, according to a recent report. But hold the tears for Dallas-Fort Worth hospitals because some are racking up huge profits.
HCA Healthcare, the country’s largest hospital system, earned 24 percent profit margins in D-FW in 2017, according to the latest Texas Health Market Review by analyst Allan Baumgarten. That was HCA’s best year ever in North Texas, the report said, and its largest local hospital, Medical City Dallas, earned almost $337 million on a profit margin of 36.6 percent. You read that right — 36.6 percent profit.
Two other large hospital systems in the region, Baylor Scott & White Health and Texas Health Resources, also earned double-digit profit margins in 2017.
“These averages are among the highest” in the states that he tracks,” Baumgarten said.
What does that say about the balance of power among health care providers, insurers, employers and regulators?
“In Dallas-Fort Worth, the providers have the upper hand in market power,” Baumgarten said.
How Profitable Are Big D-FW Hospitals?
Profit margins at select hospitals in Dallas-Fort Worth, 2017:
HCA Medical City Dallas – 36.6%<
HCA Medical City Plano – 25.8%
Baylor University Medical (Dallas) -18.6%
Cook Children’s (Fort Worth) – 15.4%
Children’s (Dallas) – 13.8%
Texas Health Presbyterian (Dallas) – 7.4%
Texas Health Harris (Fort Worth) – 6.2%
UT Southwestern (Dallas) – 3.5%
John Peter Smith (Fort Worth) – 1.2%
Parkland Memorial (Dallas) – 0.6%
Note: Profit margins include investment gains, philanthropy and government grants
Source: Texas Health Market Review 2018 – Mitchell Schnurman/DMN
Baumgarten regularly publishes reports on hospital and health insurance markets in eight states, and he’s been producing a Texas report since 1998. In a few metro regions, such as Denver and Columbus, Ohio, hospitals earned higher average margins than here, but they were exceptions.
All D-FW hospitals combined had an average profit margin of 12.7 percent. That surpassed margins in many other regions, including Minneapolis (4.3 percent), Detroit (5.5 percent), Cleveland (7.3 percent) and Miami (7.5 percent).
Investment income, philanthropy and government grants are included in his profit margin calculation, and they can make a big difference. These “other revenues” total hundreds of millions of dollars for Baylor and for two county hospitals that treat many of the region’s low-income and uninsured patients: Parkland Memorial in Dallas and John Peter Smith in Fort Worth.
“IParkland and Smith had large operating losses but broke even from the extra sources of income,” Baumgarten wrote.
In Texas, 17.3 percent of residents didn’t have health insurance in 2017, ranking worst in the U.S. In Dallas County, 23 percent of people under age 65 had no insurance coverage, and most were from working families, he reported.
After improving for several years, the share of uninsured Texans increased slightly from 2015 to 2017. An estimated 4.8 million statewide don’t have health coverage. Despite that headwind, local hospital profits have grown sharply in the past decade. In 2005, D-FW hospitals topped $1 billion in combined net income for the first time. By 2017, they earned a combined $2.54 billion.
One trend contributing to higher returns: The big players keep getting bigger. In 2011, three hospital systems — Baylor, Texas Health and HCA — accounted for almost 46 percent of net patient revenue in D-FW. In 2017, the same trio had a local market share of over 61 percent.
The Big Get Bigger
Combined market share in D-FW for Baylor Scott & White, HCA Healthcare and Texas Health Resources:
2011 – 45.9%
2013 – 55.5%
2015 – 58%
2017 – 61.1%
Note: Measured as share of net patient revenue.
Sources: Texas Health Market Review 2018, Texas Department of State Health Services
Higher market share often translates into greater leverage in contract negotiations with insurance companies. That can go beyond higher prices, too.
Blue Cross Blue Shield of Texas, which has over 5 million members, got in a contract fight with a major hospital system last year. Many assumed it was over reimbursements, but it was actually over “a single paragraph” to prevent Blue Cross from steering patients to lower-cost providers, an official said a few months ago.
“Under the terms, the hospital system could have imposed higher charges for Blue Cross members “every time someone walks in the door,” said Dr. Paul Hain, president of the insurer’s North Texas market. “Blue Cross has drawn a big, bright line in the sand. We will never sign that contract,” Hain told the Dallas-Fort Worth Business Group on Health.
Hain said this was happening around the country and he urged employers to stand with their insurance companies during contract negotiations.
“That’s likely a hard sell, even if it’s in the employers’ interest. Workers generally dislike changes to their health coverage, especially if they may have to change providers,” Baumgarten said.
In a booming economy like Dallas, the fear of upsetting workers — and maybe losing them over a benefits change — is greater than the fear of rising health costs. Companies still cover a majority of the costs for their employees’ health insurance, although the workers’ share has been growing fast. Higher deductibles and copayments, along with rising premiums, are eating up more of the family budget.
Over half of Texans said it was difficult for them to afford health care in a 2018 survey by the Kaiser Family Foundation. More worried about covering health costs than paying rent, utilities and transportation and buying food, the survey found.
In Texas, 38 percent of respondents said they had problems paying medical bills in the previous year; in the U.S., the share was 27 percent, the survey said.
“By switching to a narrow network of providers — and perhaps excluding one of the large hospital systems — a company health plan could get lower prices. But those deals have been available for years,” Baumgarten said. “For the most part, employers have been very reluctant to do that — and providers know it.”
How Metros Compare
Average profit margin for all hospitals in select regions
Denver – 15.2%
Austin – 13%
Dallas-Fort Worth – 12.7%
Milwaukee – 10.5%
San Antonio – 9.5%
Houston – 8.4%
Miami – 7.5%
Cleveland – 7.3%
Detroit – 5.5%
Minneapolis – 4.3%
Note: Texas results are for 2017 and others are for 2016.
Source: Allan Baumgarten’s Health Market Reviews
Source: Dallas News
