Minnesota Health Market Review 2017, Part Two

  • ID: 4496440
  • Report
  • Region: United States
  • Allan Baumgarten
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Net Income for Twin Cities Hospitals Drops by 19%

Operating income for Twin Cities hospitals tumbled by $300 million in 2016, as their net income dropped for the second consecutive year. Inpatient days for those hospitals grew slightly for the second year in a row, as inpatient days covered by Medicaid increased again. Minnesota HMOs resumed their profitability and increased enrollment by 8.6% in the first nine months of 2017.

These and other findings are in Part Two of Minnesota Managed Care Review 2017. The report analyzes data from Medicare cost reports on financial performance and inpatient utilization for 31 Twin Cities area hospitals (including four in western Wisconsin) and 52 hospitals serving outstate Minnesota. The hospital analysis is organized around the region’s large integrated delivery systems, including Allina, Fairview and HealthPartners in the Twin Cities and Mayo, Essentia and Sanford Health in outstate Minnesota.

Here are key findings from the new report:

  • Net income for Twin Cities hospitals dropped again in 2016. Twin Cities hospitals posted net income of $444 million (4.3% of net patient revenues) in 2016, down from $548.1 million in 2015 and $579.8 million in 2014. Though their net patient revenues grew by 5% in 2016, care delivery expenses grew by 8.2%. Margins for the Allina Health hospitals dropped from 8% to 3.0%, and net income for the Fairview Health hospitals fell from $164.7 million to $138.2 million. Net income was much improved at the HealthPartners hospitals, growing from $35.9 million to $102.1 million in 2016. Several systems have announced layoffs in the last year.
  • Inpatient hospital days increased for Twin Cities hospitals. They provided 1.46 million inpatient days, 36,000 more than in 2015. On average, 70.1% of beds were occupied in 2016, up from 69.2% in 2015. More than half of the additional days were covered by Medicaid, which now covers about 1 in 5 Minnesotans, and the rest by Medicare.
  • While some outstate systems improved their results, overall net income also declined for hospitals serving outstate Minnesota, from $1.244 billion in 2015 to $1.013 billion in 2016. Average margins decreased from 11.4% to 8.9%. Net income grew for the Mayo Clinic hospitals in the state, from $495.5 million in 2015 to $528.1 million. Margins for the Sanford Health hospitals grew from 12.4% in 2015 to 12.5%. However, two large systems, CentraCare and Essentia, had a sharp decline in their net income. Margins for the Essential hospitals fell from 6.6% to 2.9%, while net income for CentraCare fell from $184.9 million to $14.2 million.
  • The merger of Fairview and HealthEast creates the largest system in the Twin Cities, with 29% of the market based on patient revenues. HealthPartners is absorbing Hutchinson Health, and the CentraCare system is combining with Affiliated Medical Center, a large group practice, and Rice Memorial Hospital. Health systems continue to grow through mergers, new construction of specialty centers and convenient care sites, starting insurance companies and strategic partnerships, with some systems covering large parts of the Upper Midwest.
  • Many Minnesota provider systems are participating in Accountable Care or shared savings arrangements with Medicare and Medicaid. Seven Minnesota provider systems operate Medicare Accountable Care Organizations, and 19 groups have similar contracts for Medicaid. In 2016, three Medicare ACOs earned shared saving, and six Medicaid IHPs did. Even so, the trend toward more-risk- or performance-based payment has been very slow for commercially insured groups in the state.
  • Minnesota HMOs regained profitability and their enrollment grew by 8.6% in the first nine months of 2017. Two HMOs, Blue Plus and Medica, posted large losses in 2016, but were profitable again in 2017. Most of the enrollment growth was in state public programs. Some was the result of individual plan enrollees switching to HMO plans after Blue Cross Blue Shield exited the individual market. Despite state efforts to stabilize the market for individual health coverage, enrollment in HMO and PPO individual plans dropped from 191,000 to 159,000 in the first three quarters of 2017.
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1. Introduction

2. Hospitals and Provider Systems

3. Twin Cities Area Hospitals and Systems

  • Revenues and Net Income
  • Occupancy and Payer Mix
  • Performance Bonuses and Penalties

4. Outstate Systems and Hospitals

  • Revenues and Net Income
  • Occupancy and Payer Mix
  • Performance Bonuses and Penalties

5. Health Plan Trends

  • Enrollment by Regio.
  • Utilization and Effectiveness of Care and Enrollee Satisfaction

6. A Look Ahead

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