Parkview’s Record Excessive Revenues

Parkview Field - courtesy image.

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 — most notably Parkview Hospital in Fort Wayne — 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.

[…] 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 — 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.

“… 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 — our board can take — a very long view of, ‘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. “… 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 — and the economy

Because of Parkview Health’s facilities and the number of people it employs — more than 3,800 in Allen County alone, according to Business Weekly research — 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.  I would strongly encourage you to give it a read.

6 COMMENTS

  1. The recent cash infusion is due, in part, to an effort to save money to build new facilities.

    I think this is the key. It isn’t like they are just making money and keeping it. They are expanding

    I have never had work done at Parkview, but I imagine their costs for health care are similar to Lutheran or St. Joe.

    Because of Parkview Health’s facilities and the number of people it employs — more than 3,800 in Allen County alone, according to Business Weekly research — Packnett considers the organization more than just a health-care provider. It’s a major economic-development player in northeast Indiana.

    This is also great news and at the heart of the issue. With GMs uncertainty, Fort Wayne needs to have people making this kind of “profit” to ensure jobs stay in the region.

  2. No matter what kind of spin you put on it, here’s the question: Once these new construction projects are finished, will Parkview lower their costs to patients, or continue to rack up these excess revnues? While the article’s author wasn’t able to provide definite profit percentages for the Lutheran system, it did state that Parkview has ranged up to 10% while in 2007 Lutheran had a 4.2% net.

    This article doesn’t look like Parkview’s nonprofit status is a hindrance to keeping it competitive like they’ve stated all along. As for Parkview being a “major economic development player”, that is not nor should it ever be their mission. Their mission should be to provide quality health care to those in the community. The question here is could they be making a better economic contribution by lowering health costs, especially to those in need? New buildings are nice, but if I’m sick and in the hospital, the last thing I care about is the decor of the room.

  3. I have no problem with Parkview making enough profit to pay for their buildings in cash. Think of the several hundred million or so it would have over the base amount had it bonded the buildings. It is a case of you can pay a little extra now or pay a great deal more later. Take a pick!

    Parkview faces some costs when it tears down most of the Randallia Drive buildings.

    I do also have a problem with Parkview’s CEO belief they are a major player of the econ development of Allen County. Well then if they want to be a big help is to drop the non-profit status and pay taxes like Lutheran does.

    Also the Parkview CEO may want to also look at sharing some of his big bucks with the nursing and support staff in helping making Parkview a bigger econ player. You know the front line troops!!!

    BTW, I still think the Harrison Square ballpark is still plain wrong. That money could have helped 1000’s facing being shut off for being unable to pay utility bills and look how much more they could have done with the food bank. Plus they could have helped the kids this Christmas…. That is what a real non-profit does.

  4. Thank you for your comments, JQ. I don’t know who you are but I appreciate your viewpoint.

    I think there are so many different ways to look at this situation. A lot of our perceptions on this are determined by a plethora of other factors and life experiences that make us each unique. Not the least of which is what our national economy is experiencing and the effects of this on each of us on a daily basis.

    I do feel it’s not a case of pay a little extra now or pay a “great deal more later”. Obviously, if they’re able to sock away money like they’ve been doing, they could afford to pay the interest on the building projects without having to raise their prices. Perhaps it would have forced them to consider if the buildings they’re replacing actually needed to be replaced or taken a more conservative approach to the projects.

    Paying more now causes ripples out throughout our economy. People who are without insurance may be forced into bankruptcy. This affects not only health care businesses, but ripples out into other businesses and areas as well. Lives may be shortened because medical care is too costly to seek for mild conditions that if left untreated blow up into life defeating occurrences. Besides all this, isn’t paying interest on an expansion project part of the cost of doing business? Isn’t part of business to figure out a way to keep budgets as low as possible, to keep costs down and keep them out of operating deficits?

    Their biggest justification in naming the ballpark at Harrison Square was that they’re a nonprofit and need to be able to compete with the for-profits in town. Buying the naming rights gave them the most bang for their advertising buck – or so they stated. As far as contributing to utilities or food banks or whatever, any money Parkview generates that’s given to charities, should go to health care oriented organizations. As far as giving more to their staff, the nurses, janitors and support workers that I’ve had the opportunity to interact with, and it’s been quite a few over the years, seem to already be paid generously.

    I don’t know what the answer is. I’m just an average every day citizen trying to stay afloat. I do know this however – my perception is that Parkview touts their nonprofit status, but operates and does things that for-profit organizations/businesses do. That is what I have the issue with.

  5. How can Mike Packnett say that all “excess funds stay in the region”? The $300,000 per year for naming rights for the unnecessary new ballpark GO DIRECTLY TO ATLANTA, GEORGIA! Since when is Atlanta in “Our Region”???? Does Mike have a big head about his organization or what?

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