AHA: Nonprofit hospitals aren't seeking a bailout for investment losses

The American Hospital Association says a recent analysis by health economists claiming that nonprofit health systems are seeking taxpayer subsidies for investment losses last year is "patently false."

"...entities with deep pockets and an apparent vendetta against hospitals and health systems have turned their attention toward the broader financial challenges facing the field," Aaron Wesolowski, AHA's vice president of policy, research, analytics and strategy, wrote March 29.  

As a result, the economists' conclusions are "a complete misunderstanding of current economic realities" and should not be used to influence public policy, he wrote.

In its blog post, the AHA sought to clarify three key claims made by the economists: hospitals are seeking a bailout from the federal government and private payers, risky investments are the "most problematic" piece of hospital financing, and hospitals are being dishonest about the current financial state of the industry.

The three economists from RAND Corp., Manhattan College and Johns Hopkins University wrote in Health Affairs on March 24 that investment losses accounted for 85 percent of overall financial losses at some of the nation's largest nonprofit health systems in 2022.

The researchers analyzed overall profit margins, including operating and nonoperating activities, at 10 large nonprofit systems that all reported negative profit margins in the second quarter last year. From 2021 to 2022, overall profit margins declined from 9 percent to -6 percent, patient care revenue increased by 0.73 percent, and investment income declined by 185 percent.

"...when losses are driven by risky financial investments, which generated positive returns in many previous years and will do so in many future periods, it is not clear whether patients, employers, insurers, and taxpayers should be responsible for paying higher prices to offset the impact of overall market declines," the authors wrote.

"The conclusion that non-operating earnings are part of the calculus in determining operating costs for not-for-profit health systems is not correct," Matt Swafford, senior vice president and CFO at Bend, Ore.-based St. Charles Health, wrote on LinkedIn March 24. "Inflation, workforce shortages and the inability to discharge patients to post acute settings are the primary drivers of the substantial and persisting deterioration in not-for-profit health system operating performance."

According to the AHA, asking Congress for higher Medicare and Medicaid reimbursement rates to offset rising operational costs is not a taxpayer bailout, but a request to be fairly compensated for the care that hospitals provide.

In addition, the AHA wrote that the economists' suggestion that a 0.73 percent increase in patient care revenue from 2021 to 2022 is a positive trend lacks the context that hospitals' total expenses grew by more than 7 percent during the same time period, according to data from Kaufman Hall.

In its most recent "National Flash Hospital Report" on March 28, Kaufman analysts wrote that while hospital operating margins remain "razor-thin," there are signs that high levels of fluctuation are beginning to stabilize.

Finally, the AHA confronted the economists' suggestion that a study it commissioned last fall by Kaufman provides an "incomplete picture of hospitals' overall financial performance," therefore it is challenging to use the study to make general conclusions.

"The authors and their financial backers clearly seem to have a preconceived narrative, and ignore all the other realities that hospital and health system leaders are confronting every day to ensure access to care and programs for the patients and communities they serve," Mr. Wesolowski wrote.

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