Report #1: Reasons for LGH’s exceptional profits

Posted on July 30th, 2008 in LGH Series

Report #1: Reasons for LGH’s exceptional profits

NewsLanc borrowed the services of Douglas McVay, Director of Research with an affiliated non-profit organization, to determine what circumstances have enabled Lancaster General Hospital (LGH) to earn the second highest profits in the State, amounting to $136 million in fiscal year 2007. Findings are not meant to detract from the efficiency and competence of LGH and the high quality service they provide.

McVay has examined and correlated information provided from Federal and State sources, LGH itself, and other publications deemed reliable. The research indicates special circumstances that are unique to our region plus LGH’s strong market position contribute substantially to LGH’s remarkable profitability.

Though LGH’s representative was cooperative at the outset, he became less forthcoming and then ceased to respond to inquiries as McVay’s inquiries became more knowledgeable and pertinent.

Therefore, the following factors for profitability are not a definitive list, but only those supported by current data on hand.

1) Proportion of LGH’s revenues from Medicare is 30%. For the region of which LGH is a part, 34%. For the state, 37%. Medicare pays a set fee which is considerably lower than private insurers and may not always cover the full costs of services. By law, Medicare rates are the lowest which hospitals are allowed to charge. The fewer Medicare patients, the greater profitability.

2) Proportion of LGH’s revenue from Medicaid is: 5%. For the region, 7%. For the State, 11%. Reports suggest that reimbursement for Medicaid is similar to Medicare. The fewer Medicaid patients, the greater profitability.

3) Uncompensated Care (bad debt + charity) for LGH is 1.5% of Net Patient Revenue. For the Region, 2.8%. For the State, 2.3%. The less bad debt, the greater profitability.

4) LGH’s Charitable Care in 2007 amounted to 0.5% of Net Patient Revenue. The State was 0.9% (Regional data was unavailable.) Note that LGH only provides about half as much charitable care as do hospitals throughout the state. The less Charitable Care, the greater profitability.

5) Percentage of “Charges” collected for LGH is: 50%; for the Region, 46%; for the State, 27%. Although available information is limited in this area, a comparison of LGH charges for ten medical procedures with a sample of hospitals from across the state indicated that LGH charges were about average. (Note: The “Charge” is a virtually mythical figure from which there are various discounts depending upon who is the payer.) The higher the proportion of Charges collected, the greater the profitability.

6) LGH’s program provides Amish and other cash payers with a standard 25% discount. According to the Wall Street Journal, Heart of Lancaster “agreed to discounts of up to 40% off its top rates” for the Amish. Lancaster County’s population is approximately 5% Amish. The less the discount to the Amish and cash paying patients, the greater the profitability.

This is the first of a series of articles that will delve into issues of profitability, fairness, and how earnings are utilized by Lancaster General Hospital. Greater transparency will influence LGH, a Public Corporation, to use its remarkable profitability in the best interests of the community.

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