Allan Baumgarten's Managed Care Reviews

OHIO

January 20, 2012

Ohio Health Market Review 2011 finds:

Medicaid and Medicare plans drive strong HMO profitability;

Hospitals enjoy strong profits even as inpatient days decline

Cincinnati/Columbus/Cleveland Ohio health plans and hospitals enjoyed strong profits in 2010. Medicaid plans, which have tripled in size in recent years, were by far the most profitable. But inpatient utilization at hospitals in Cleveland and Cincinnati has declined for the past three years and has been flat in the Columbus area.

These are among the key findings presented in Ohio Health Market Review 2011, Allan Baumgarten's 12th report analyzing health care insurance and provider markets in Ohio. The report, released here this week, presents a unique analysis of data about health plans and hospital systems in the state. Baumgarten, an independent analyst based in Minnesota, first published his Ohio market analysis in 1997. He has also published annual market studies in Arizona, California, Colorado, Florida, Illinois, Kentucky, Michigan, Minnesota, New York, Texas and Wisconsin. Ohio Health Market Review 2011 benchmarks Ohio HMOs against their counterparts in other states on several key measures. The reports for Arizona, California, Kentucky and New York were published with support from health care foundations in those states. PDFs of those state market reports are available for free download by following links at www.AllanBaumgarten.com.

In the new report, Baumgarten finds:

After dropping sharply in 2008, hospitals in the state enjoyed strong and growing profits in 2009 and 2010.

For example, using data from Medicare hospital cost reports for 2010 operations, Baumgarten found Cincinnati area hospitals had combined net income of $302 million, or 5.9% of $5.1 billion in patient revenues. That compares to net income of only $14.7 million in 2008, or 0.3% of net patient revenues, and was almost as strong as average margins in 2007 of 6.8% of net patient revenues.

Cleveland-area hospitals reported 2010 net income of $820.6 million, or 9.6% of patient revenues. That is much improved over a 2008 loss of $154.3 million, or 1.7% of net patient revenues of $8.950 billion. The 10 Cleveland Clinic hospitals had average margins of 10.8% and $535 million in net income, while the University Hospital system hospitals had average margins of 12.7%. These hospitals often report losses on operations, but had the benefits of significant other income from government grants, investments and philanthropy.

Hospitals in Columbus also had good results in 2010: average margins of 8% and net income of $418 million. That compared to 2008 net income of $328.8 million, or 6.3% of net patient revenues. The four OhioHealth hospitals had the best results, with average margins of 14.4%.

Even as their profitability improved, hospitals in Cincinnati and Cleveland reported lower inpatient utilization.

Although new hospitals and medical campuses are constructed and planned in many parts of the state, inpatient utilization has declined in some of the large metropolitan areas. In Cincinnati, for example, inpatient hospital days dropped by about 1.5% in 2010 after dropping almost 4% in 2008. Inpatient hospitals days for Cleveland hospitals dropped by more than 3% in 2010. Inpatient days for Columbus area hospitals were flat in 2010, even as more than $1 billion worth of construction is underway, building a new cancer hospital at Ohio State University and adding new campuses in nearby counties.

Led by CareSource, Medicaid HMOs were strongly profitable in 2010 and have rich prospects for future growth and profitability. (See graphic below of Medicaid operating margins.) In 2010, Ohio HMOs had net income of $213 million, or 2.7% of revenues of $9.3 billion. That compares to 2009 net income of $121 million and 2008 net income of $43.7 million. CareSource, a Medicaid HMO based in Dayton, reported more than half of the 2010 profits. Other Medicaid plans such as Molina and UnitedHealthcare were also strong profitable in 2010. Anthem Blue Cross Blue Shield, the largest health plan company in the state, had net income of $375.7 million, or 9.1% of underwriting revenues.

Medicaid HMOs have grown from 513,000 enrollees in 2004 to more than 1.6 million in 2011. CareSource is by far the largest, with more than 845,000 members. Prospects for profitable growth are very good. As the Affordable Care Act is implemented over the next five years, it is expected that about 1 million Ohioans will enter the Medicaid program, with many of them enrolling in HMOs. And Ohio is gradually converting aged and disabled Medicaid enrollees to managed care arrangements, with about 125,000 now enrolled in HMOs.

Excerpts from the report, including the popular Ohio HMOs at a Glance exhibit can be viewed in the State Reports section of http://www.allanbaumgarten.com. Copies of Ohio Health Market Review 2011, published in interactive PDF format, can be ordered for $160.00 by calling Baumgarten at 952-925-9121. Fax: 952-925-9341, E-mail: Baumg010@tc.umn.edu

OHIO