An article in this week’s Greater Fort Wayne Business Weekly by Derrick Gingerly:
The six hospitals owned by Parkview Health, a nonprofit health-care provider, have become cash cows during the last few years.
When combined, the hospitals â€” most notably Parkview Hospital in Fort Wayne â€” generated hundreds of millions of dollars more than was spent by Parkview Health to provide medical care in the region, according to filings with the Internal Revenue Service. A large portion of that revenue is not taxed because of the hospital’s nonprofit status.
The recent cash infusion is due, in part, to an effort to save money to build new facilities. When asked if the health-care provider makes too much money, Parkview Health CEO Mike Packnett simply says, “No.” He wants Parkview Health to maintain a 7-percent annual profit margin to keep it competitive.
[…]Â The health system’s margin, or excess funds divided by total revenue, has ranged from 9 percent in 2003 to more than 10 percent in 2006, according to its IRS 990 forms. Nonprofit organizations are required to file the forms annually with the federal government.
Filings for Parkview Hospital, which for IRS purposes includes the Randallia Drive facility and Parkview North Hospital off Dupont Road, said it made $81.9 million more than it spent in 2006.
That figure was higher than 2005, when Parkview Hospital reported $65.6 million in excess revenue.
Since 2001, Parkview Hospital has had a significant increase in revenue exceeding expenses. After making just over $11 million in 2000, excess funds more than quadrupled â€” to almost $45 million the next year. Since 2001, excess revenue has increased 82 percent.
Excess funds are the money left over after all expenses are paid, including salaries and program costs. Since 2000, Parkview Hospital’s Randallia and north campuses have made $343.5 million more than was spent, according to IRS filings. That is enough to pay for more than half of the total cost of expanding the Parkview North campus, which is expected to cost $536 million.
Parkview Health pays about $1 million in property taxes a year for for-profit ventures with which it is involved. Because the system has nonprofit status, its profits are tax-exempt. Parkview Health also has the ability to use tax-exempt debt to pay for construction projects.
“â€¦ The great thing about tax-exempt or (the) not-for-profits side of health care is every dollar stays within the service region,” Packnett said. “And we can take â€” our board can take â€” a very long view of, â€˜How do we provide absolutely the best health care for this region?’ We’re not looking at quarterly earnings, we’re not looking at annual earnings.”
[…] “We expect debt and investment will be approximately equal (when construction ends),” he said. “That’s why you see us building a little more reserves now.
[…] When the expansion of Parkview North and construction of a new Parkview Whitley Hospital are completed in 2011, the health-care system will have replaced all of its hospitals in a 12-year period. About $646.5 million will have been spent in the process, including more than half a billion dollars for the Parkview North project.
[…] Nafziger said as a nonprofit, Parkview Health has few options to raise capital.
“Really the only two ways we get money are we save money out of our operating profits or we go and we borrow money in the form of tax-exempt debt,” he said. “â€¦ At the end of the day, all the equity in the tax-exempt organization belongs to the community. It’s a lot different operating model (than a for-profit hospital).”
Helping patients â€” and the economy
Because of Parkview Health’s facilities and the number of people it employs â€” more than 3,800 in Allen County alone, according to Business Weekly research â€” Packnett considers the organization more than just a health-care provider. It’s a major economic-development player in northeast Indiana.
[…] Lutheran Health Network opened Dupont Hospital in 2001 on the north side of Fort Wayne and completed an expansion of it two years ago. St. Joseph Hospital, the health-care network’s downtown Fort Wayne facility, also recently completed a renovation and expansion.
While it does not release Lutheran’s financial data, Community Health Systems Inc., which acquired the system last year, had a net margin of 4.2 percent in 2007, according to data compiled by Morningstar Inc. Net margin is net income divided by total revenue.
From 2000-2006, Community Health Systems’ net margin was never higher than 4.64 percent, which was realized in 2003. That is below the target Parkview Health has set for itself, and its actual results.
Excellent article by Mr. Gingerly. Â I would strongly encourage you to give it a read.