Nonprofit hospitals reap billions on Wall Street: Report
- A new Axios report takes aim at the nonprofit hospital sector’s claims of financial distress and uncertainty.
- The analysis shows that the nation’s largest nonprofit hospital systems scored more than $21 billion last year through Wall Street investments, stocks, bonds, mergers and acquisitions and credit default swaps and accounting gains.
- The latest annual reports for 84 of the largest and most successful nonprofit hospital systems showed total revenue of $535.5 billion and $14.4 billion in profit—for an operating profit margin of 2.7%.
However, when Wall Street and other investments were factored in, the cumulative profit more than doubled to $35.7 billion, or a 6.7% total profit margin. Still, the degree to which the nonprofits relied on Wall Street for funding varied.
On a scale of -$1 billion to $3 billion, Trinity Health had operating profit of near zero, but total profit of more than $1.5 billion, all of which came from non-operating income. Kaiser Permanente’s operating profit was $2 billion versus $3 billion for total profit, but less than half was tied to non-operating income.
University of Pittsburgh Medical Center got between 50% and 100% of its profits from investments and other non-operating income. Financial documents showed roughly $1 billion in total profits.
The report includes a caveat, since it focused on the largest and wealthiest U.S. health systems. Many smaller, rural and publicly owned health systems are fighting to stay alive with fewer patients and shrinking reimbursements. Those in areas with larger health systems are unable to compete on payment rates with insurers and the latest equipment.
The report comes as nonprofit and for-profit hospitals alike are facing increased financial pressures amid new regulations, legislative uncertainties and the shift to value-based care.
Nonprofit hospitals outnumber for-profit hospitals by nearly three to 1, according to the American Hospital Association.
While for-profits can count on investors’ money, nonprofits need to prove a community benefit to maintain their tax-exempt status. Still, nonprofits have come under scrutiny for high C-suite salaries and, at times, significant revenues.
The AHA has pushed back, saying hospitals more than make up for their tax-exempt status through community partnerships, health and wellness programs and other outreach programs aimed at specific community needs. In a recent analysis by Ernst and Young at AHA’s request, hospital community initiatives outweighed the value of their tax exemption by a factor of 11 to one.