Report #1: Reasons for LGH’s exceptional profits
Posted on July 30th, 2008
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.
Report #2: Reasons for LGH’s market dominance
Posted on August 5th, 2008
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.
The following is not a definitive list of LGH’s marketing advantages, but only those supported by current data on hand.
1) LGH has a very large—34,000 square foot—emergency department, the biggest in the area. Visits have jumped from 56,287 in 2003 to 93,489 in 2007.
2) LGH has the county’s only Level II trauma center and Level III neonatal intensive care unit. More serious emergency cases are likely to be routed directly to LGH rather than one of the other hospitals in the area. Inpatient admissions originating in LGH’s emergency department rose from 11,425 in 2002 to 16,853 in 2007. In 2002, 36% of admissions originated in the emergency department; by 2007 that had grown to 42%, and it seems to still be trending upward.
3) LGH had been ranked quite highly in annual US News & World Report hospital surveys in some specialties in years past although rankings have slipped recently.
4) LGH markets itself as a “Nursing Magnet Hospital” and claims on its website, “Magnet recognition is a coveted designation to recognize excellence in nursing care.” According to the Center for Nursing Advocacy “Some critics, including the California Nurses Association and the Massachusetts Nurses Association, have argued that the Magnet program is primarily a hospital promotion tool ….”
5) LGH’s affiliate, Lancaster General Medical Group (LGMG), is a “multi-specialty network of physicians and mid-level providers.” Established in 1995, LGMG has “105 physicians and 20 mid-level providers distributed among 16 practices at multiple sites.” Beyond being LGH profit centers themselves, physicians and providers in the Group are also likely to use LGH facilities.
6) LGH established one of the nation’s first residency programs specializing in Family Medicine. This program helps LGH build referral relationships with young physicians who often stay in the Lancaster area—whether or not they work directly for LGH or an LGMG practice.
7) LGH facilities have been redecorated in a tasteful manner. (The entryway on James Streets presents a five star ambience.) As an observer opined “It is like staying at a nice hotel. Even the food isn’t too bad.”
Due to LGH’s growing market dominance, some observers expect both Regional Hospital and Heart of Lancaster cease to be full service hospitals and for a merged LGH / Ephrata Hospital to have a monopoly. Greater transparency and public input will influence LGH, a not for profit corporation, to use its remarkable profitability in the best interests of the community.
Commentary: LGH – It’s our $113 million
Posted on May 10th, 2009
In the Sunday News May 10 lead article headed “$113 MILLION SURPLUS IS A DECREASE FOR LGH”, the newspaper leans over backwards to paint Lancaster General Hospital as a great benefactor of the city and the community while struggling to minimize the implication of so much public money being directed not necessarily in the public’s interest.
The paper quotes President and CEO Thomas Beeman as saying “Things have changed dramatically in the past year. We’re reflecting the rest of the economy.” For the sake of the national economy and especially the auto industry, would that it were true!
As a series in NewsLanc exposed, LGH has been the second most profitable hospital in the state and has one of the lowest levels of contribution to charity.
As also reported and affirmed by a reliable LGH source, the hospital’s dominant position in the Lancaster market place enables it to negotiate higher fees from insurance companies than is possible elsewhere.
However, when insurance companies have to pay higher costs, they need to charge more for their policies. The companies will make their mark up and thus their profits; but the brunt of the high prices falls upon the policy owners, who are we Lancastrians. So we aren’t talking about LGH’s money; it’s a non-profit institution. We are talking about our money: the public’s money!
Here is some sycophantic misdirection from the article:
“Lancaster Mayor Rick Gray lauded Beeman and LGH. ‘When I talk to other mayors and tell them how much they contribute, their jaws drop.’” If Gray tells them how much LGH is making due to its dominant health care position, the other mayors would probably keel over!
“More than $25 million of the surplus will go to replacing and upgrading equipment.” When equipment is replaced and upgraded, the costs are depreciated over several years and are deductions from profits. The $113 million this year is after, not before, the costs of “replacing and upgrading equipment” over the past years. In future years, LGH will charge off this year’s outlays.
“LGH spent more than $50 million last year on care for low-income and uninsured patients.” That would have been expensed, so the $113 million is after allowing for such services.
“The hospital spent more than $1 million last year on wellness programs targeting, among other things, obesity and smoking.” Commendable, but also treated as an expense; so not out of the $113 million profit.
“The hospital offers financial assistance on a sliding scale.” Again, that is expensed, so the $113 million profit is after providing such services which are typical of all hospitals.
The Sunday News goes on: “Beeman said that pharmaceuticals represent one-third of LGH’s costs and cited unnecessary emergency room visits as an ‘inefficient’ way to seek care.” Absolutely! But those inefficiencies are treated as cost and do not come out of the $113 million profit.
Also reported “The hospital distributed nearly $1.9 million in grants last year, of which more than $100,000 went to United Way of Lancaster County.” Isn’t part of that allowed as an expense?
Alex Henderson III, vice chair, is quoted as saying “All the money we make goes back into the community.” True enough, but the issue is how much is bloated compensations, pensions, perquisites, and spending on plant and equipment which should not have the highest priority?
For example, Rick Kastner, Executive Director of the Lancaster County Drug and Alcohol Commission, reports that less than 500 of the 5000 to 10,000 heroin addicts in the county are able to afford or, even if they have the money, obtain treatment. Would the community not be better off if LGH only made $110 million but another thousand addicts received health care and were able to become constructive and law abiding members of their families and of the community?
This article is not meant to be a put down of the good people of General Hospital who provide commendable expertise and services. Rather, NewsLanc believes that LGH is the one institution that best reflects the needs of the community and has the potential for relatively selfless leadership in the future. The other four local titans – Franklin & Marshall College, Fulton Bank, High Industries and the Lancaster Newspapers- are duty bound to stockholders or trustees to best represent their special interests. And they certainly are so motivated!
NewsLanc does believe that LGH has a responsibility to utilize its earnings for the best overall interests of the community from which its disproportionate profits spring. It could well afford to donate $25 million to $50 million of the $113 million towards public health and education. Furthermore, over time, the gifts would actually earn profits as a result of a healthier and more prosperous community that would be better able to pay its bills without subsidies and charity.
It’s time for Rick Gray, United Way President Susan Eckert, and the Lancaster Newspapers to stop blowing kisses to LGH (to put it politely) for the crumbs LGH allows to fall from the table and call upon the health care system to do far more for the good of the public, which not only is the source of its revenue, but owns the place!
