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ABSTRACT To identify the characteristics of the most profitable US hospitals, we examined the profitability of acute care hospitals in fiscal year 2013, measured as net income from patient care services per adjusted discharge. Based on Medicare Cost Reports and Final Rule Data, the median hospital lost $82 for each such discharge. Forty-five percent of hospitals were profitable, with 2.5 percent earning more than $2,475 per adjusted discharge. The ten most profitable hospitals, seven of which were nonprofit, each earned more than $163 million in total profits from patient care services. Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability than hospitals that did not have these characteristics. These findings can inform policy reforms, while providing a baseline against which to measure the impact of any subsequent reforms.
Hospital care is the largest component in US health care spending (32 percent), and it increased by 4.1 percent from 2013 to 2014, reaching $972 billion.1 In this study, using data from fiscal year 2013 for all US acute care hospitals, we examined the factors that are associated with hospital profitability for patient care services, focusing our attention on the characteristics of the most profitable hospitals.2
For years the Medicare Payment Advisory Commission (MedPAC) has been analyzing trends inhospital marginsto provide recommendations to Congress about Medicare payment adjustments. MedPAC has consistently found that for-profit hospitals, urban hospitals, and nonmajor teaching hospitals (those with a ratio of interns andresidentstobeds oflessthan0.25) have higher overall margins, compared to other hospitals.3 In the health services research literature, the factors influencing hospital profitability generally fall into one of the following three broad categories: ownership;4,5 market power;6,7 and other characteristics, such as size and teaching status.8 Our study extends MedPAC analyses and the health services research literature by incorporating the following new factors: markup, prestige, the market share of the largest insurer in the state, health maintenance...