Part 3: Urban Hospitals in Alaska Reap Huge Profits

A new series of reports from the Alaska Health Care Commission look at the high cost of health care in the state. Private health insurance premiums are about 30 percent higher here than in comparison states. The reports point to lots of potential reasons for the higher costs, but one surprising finding was the high profit margins for Alaska’s urban hospitals.

Alaska’s urban hospitals are very healthy businesses. According to the Health Care Commission reports, on average their profits in 2010 were 16.2 percent. The nationwide average for the same year is 6.3 percent. Dr. Noah Laufer spent the last year as a member of the Health Care Commission. He is a primary care physician in Anchorage. He says the hospital profits received a lot of attention in commission discussions.

“I think it’s a truth finding mission at least for now, a lot of raised eyebrows, a fair amount of resistance, at least from hospitals, but I think what we’re doing is getting a more realistic picture of what’s going on,” Laufer said.

The hospital with the largest profit, according to the report, was Alaska Regional, in Anchorage. Their 2010 profit is listed at 29 percent.  To put that number in perspective, the historical average profit for fortune 500 companies is less than 5 percent. Alaska Regional disputes that figure. CEO Annie Holt says because regional is run by a nationwide company, the report did not account for the cost of services provided by the owner, Hospital Corporation of America or HCA. But even factoring that in, the figure Holt comes up with is still nearly three times higher than the national average.

“Holt: About 15…15 to 17 percent. Annie Feidt: Does that seem like a high profit margin? Holt: I can’t really answer that, because I haven’t studied what it looks like nationally, I know I was told it would be comparable to our colleagues here in the Alaska market.”

Holt makes the case that the company pays millions of dollars in taxes to the city and state. And she argues that having a big corporation behind the hospital allows them to be very competitive on price.

“Many of the functions that are required for a hospital to run are actually handled electronically at our corporate or regional office, so we do keep our cost down here at Alaska Regional,” Feidt said.

Hospital profits are an important part of the health care cost picture because about 1/3 of total health care spending goes to hospitals. Profit Margins for hospitals in Alaska vary widely, according to the report. In general, rural hospital profits are much lower than in the urban areas. Two hospitals- Cordova Community Medical Center and Providence Valdez Medical Center recorded a loss for 2010. In Anchorage, Providence hospital had a profit of about 13 percent for 2010. Providence is a non-profit, so CEO Bruce Lamoureux says all of that money stays in the state.

“In the case of Providence Alaska, those margins are used in this community, for the benefit of community health,” Lamoureux said.

For 2010, Providence says it spent more than $50 million for community benefit.

Lamoureaux says there are a number of factors that drive hospital profits up in Urban Alaska. A high occupancy rate is one of them- there aren’t many idle beds. High Medicaid reimbursements is another – Alaska has generous Medicaid reimbursement rates. But Lamoureaux says everyone in the health care industry knows that belt tightening is coming. And Providence is working on programs to address that.

“We can deliver better care and we think in the long run that is not only morally the right thing to do but it prepares us for a future state where we better get better at managing costs,” Lamoureaux said.

The top executive at the Alaska State Hospital and Nursing Home Association, Karen Perdue agrees that hospitals in Alaska will need to do more with less in the future. But she says there is a lot more to managing costs.

“I think the way to eliminate costs in hospital care is to keep them out of the hospital and keep them from coming back into the hospital. Can hospitals be more efficient with the money they get? yes. should they try? Absolutely,” Perdue said.

And Perdue points out that the majority of hospitals in Alaska are making profits that are in line with or below the national average. After spending many hours poring over the reports and discussing the data,  Dr. Laufer- from the Health Care Commission- comes to this conclusion.

“I’m not opposed to having healthy robust hospitals, but I would prefer to see a system that rather than focusing on growth is focused on sustainable, good health care for all us,” Laufer said.

That is the goal of the Health Care Commission as well. The hope is these reports start a dialogue on the issue that will eventually lead to some solutions.

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Annie Feidt is the Editor and Producer of Alaska News Nightly, and is also a frequent contributor to the show. Her reporting has taken her searching for polar bears on the Chukchi Sea ice, out to remote checkpoints on the Iditarod Trail, and up on the Eklutna Glacier with scientists studying its retreat. Her stories have been heard nationally on NPR and Marketplace. Annie’s career in radio journalism began in 1998 at Minnesota Public Radio, where she produced the regional edition of All Things Considered. She moved to Anchorage in 2004 with her husband, intending to stay in the 49thstate just a few years. She has no plans to leave anytime soon. afeidt (at) alaskapublic (dot) org  |  907.550.8443 | About Annie