The nonprofit Carondelet Health Network's St. Mary's and St. Joseph's hospitals in Tucson reported combined operating losses of nearly $90 million in their most recent public financial statements.
The operating deficits are by far the largest any Tucson-area community hospitals reported to the Arizona Department of Health Services in 2012. The net operating loss at the west-side St. Mary's Hospital was $47 million. The net operating loss at the east-side St. Joseph's Hospital was $40.9 million.
Net income from operations, the amount left over after taking out operating expenses, is a key indicator of a hospital's fiscal health. The magnitude of operating losses at Carondelet stand out, but the chain of Southern Arizona Catholic hospitals is not alone in facing financial hardship. Hospitals across Arizona have been hard-hit by a shaky economy that has left a rising number of Arizonans without health insurance.
The state has frozen enrollment in Medicaid for childless adults and has also cut reimbursements to hospitals for Medicaid patients. As a result, bad debt and charity care is soaring. At Tucson Medical Center, it nearly tripled between 2010 and 2012.
The rate of uninsured patients at the University of Arizona Medical Center's South Campus rose to 13 percent of hospital volume during the last fiscal year - more than one in 10 patients. And at the UA Medical Center's University Campus, uncompensated care tripled to 7 percent, hospital officials said.
The rise in uncompensated care is hurting operating margins of Arizona hospitals, pushing those margins lower than the national average, said Peter Wertheim, a spokesman for the Arizona Hospital and Healthcare Association. Uncompensated care at Arizona hospitals was nearly three quarters of a billion dollars last year, a "staggering" 70 percent increase over 2011, Wertheim said.
"While overall operating margins are hovering around 4 percent, in recent months more than 40 percent of hospitals in Arizona are showing operating losses on average," he said. "Pockets of hospitals in areas, particularly Southern Arizona, have been really hit hard."
Carondelet officials would not discuss the network's finances. The organization issued a general statement through a spokeswoman Friday afternoon: "As a faith-based, non-profit health care ministry, our mission includes providing the highest quality and safest care to everyone, with special attention to those who are poor and vulnerable. When businesses and families in our region struggle financially, we certainly feel the effects. Our mission, however, will not change and our commitment will not waver."
Carondelet Health Network Chief Executive Officer James K. Beckmann would not answer any follow-up questions.
Arizona hospitals are required by state law to file a uniform accounting report 150 days after the end of their fiscal year. Since hospitals have different fiscal years, their reporting months are typically either November, February or May. The most recent numbers were posted in December.
Carondelet's Holy Cross Hospital in Nogales, Ariz., showed a $3.2 million operating loss in the last fiscal year, and its Heart and Vascular Institute, which has since been absorbed by St. Mary's Hospital, showed a net operating loss of $8.6 million, according to the report filed with the state Nov. 29.
The operating margins, or ratio of a business's operating income to its revenue, were in the red for all Carondelet hospitals on the most recent report, ranging from negative 15 percent at Holy Cross to negative 34 percent at St. Mary's.
The average U.S. hospital has an operating margin of about 6 percent, said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management.
"You see variations, obviously, but virtually no hospital stays negative for more than three or four years without being bought by someone or going out of business," he said. "Most typically they are bought by somebody."
Losses in recent years
Carondelet hospitals showed losses in recent years, but nowhere near the 2012 levels.
All of its hospitals had operating losses in the 2011 report to the state - $17.8 million at St. Mary's, $11.9 million at St. Joseph's, $2.7 million at Holy Cross and $8.6 million at the Carondelet Heart and Vascular Institute.
In the 2010 state report, St. Mary's had a loss of $13.1 million, and both Holy Cross and the Heart and Vascular institute were in the red, too, but St. Joseph's showed an operating gain of $6.8 million. The 2009 state report lists St. Mary's with positive operating revenue of $12 million.
Anderson said Carondelet's 2012 numbers are "extremely unusual" and questioned whether there was an accounting issue that would explain them. He also said hospitals that are losing money may be supported by financially secure owners.
"You've got to look at the corporate entity," he said. "Even if individual hospitals have a negative total margin, the whole chain may have a positive margin because the corporate entity is getting all the profits. They are still fine."
Carondelet is part of Missouri-based Ascension Health, which is the country's largest Catholic health-care system and provides care at more than 1,400 locations across the country. The nonprofit health system's 2011 annual report lists income from operations at $424 million, compared with $569 million for the prior year. The company in its annual report said reasons for the dip included an increase in uncompensated care, a shift from commercial to governmental payers and higher operating expenses. An Ascension spokesperson declined comment on Friday.
UA south campus loss
The only other local community hospital reporting an operating loss and a negative operating margin to the state in 2012 was The UA Medical Center's South Campus, which used to be known as Kino Hospital.
The South Campus reported an operating loss of $1.9 million - a big improvement over its prior fiscal year, when it had losses of $8.9 million. Losses were somewhat reduced by better distribution of volume throughout the integrated UA Health Network and increased surgical volumes, said Misty Hansen, chief financial officer of the UA Health Network.
Hansen said it's important to note that net revenue from operations included $32 million revenue from the Safety Net Care Pool - $20 million to the University Campus and $12 million to the South Campus.
The Safety Net pool was created in cooperation with the Arizona Health Care Cost Containment System (AHCCCS), which is the state's Medicaid program, and provides matching federal funds of about $300 million each year for two years to Phoenix Children's Hospital, the Maricopa Integrated Health System and the UA Health Network to cover uninsured patients. Carondelet does not receive any Safety Net funding, nor does the nonprofit Tucson Medical Center.
"The Safety Net Care Pool is the only reason that we have been able to sustain financially since the changes to the AHCCCS program," Hansen said. "We have reduced reimbursement coming from Medicare, no increases from AHCCCS and continued increases in the number of childless adults who become uninsured. Also, the costs of new technology such as electronic medical records, designed to improve quality, are expensive, and we are making a significant investment in this fiscal year and next fiscal year."
Safety Net funding is set to expire at the end of this year, which worries UA Medical Center officials since it's still not clear whether childless adults in Arizona who earn less than the federal poverty level will be covered by Medicaid in 2014, when most provisions of the federal health law take effect.
That group will not be eligible for subsidized insurance through the state health insurance exchange, which limits subsidies to those who earn 100 percent to 400 percent of the poverty level.
TMC, which operates its financial accounting on a calendar year, had a positive operating margin when it last reported to the state in May. In an interview, hospital officials said TMC's net operating income was $10 million in 2012, up from $5.8 million in 2011. The operating margin jumped from 1.5 percent in 2011 to an estimated 2.2 to 2.5 percent in 2012.
TMC Chief Financial Officer Steve Bush said the financial picture at TMC did a major turnaround in 2008. In the first part of 2007, the hospital was $11 million in the red.
"Every organization is going to have a bad year. … We had some difficult years. You really want to look at trends and, of course, the magnitude. You can withstand a bad year if you have a strong balance sheet," Bush said. "Three, four, five million, even 10 million, you can come back from something like that. If you've lost huge amounts of money, it's more difficult to recover."
Bush said TMC has been able to improve its fiscal health through expense control and gains in market share. It has also improved quality and updated the hospital campus, he said.
TMC achieved this while managing a huge load of patients who can't afford their bills. In 2010 the hospital wrote off $28 million in bad debt and charity care, and in 2012 that amount nearly tripled to $80 million.
"That is a sad story for us, but I imagine most of the hospitals would tell you the same thing," Bush said.
The for-profit Northwest Medical Center and Oro Valley Hospital both reported positive operating margins in the 2011 calendar year, though they also wrote off slightly more than $50 million in uncompensated care. The 2011 numbers are the most recent data available, spokeswoman Kimberly Chimene said.
"Positive operating margins facilitate investment in physician recruitment, new services and facilities to enhance care provided, such as this month's groundbreaking on our new surgery wing at Northwest and the expansion of physician clinics at Oro Valley Hospital," she said. "We want to be vital organizations that contribute to the quality of life and economic health of our communities."
a long presence
Carondelet has a long history in Tucson.
The Sisters of St. Joseph of Carondelet opened St. Mary's - Arizona's first hospital - in 1880. St. Joseph's opened in 1961, and the nuns began managing Holy Cross in 1981.
Carondelet purchased 80 percent of the north-side Tucson Heart Hospital in 2006 and became 100 percent owner in 2010, when it changed the name to the Carondelet Heart and Vascular Institute. Last year, Carondelet moved the Heart and Vascular Institute to St. Mary's.
Bush, TMC's chief financial officer, said Carondelet is both a friendly competitor and a community asset.
"I hope they can turn it around," he said.
HOSPITAL OPERATING MARGINS
Operating margins for Tucson-area community hospitals. Numbers in parentheses indicate a negative margin:
*Carondelet Heart & Vascular Institute: (26.2%)
Carondelet St. Joseph's: (19.7%)
Carondelet St. Mary's: (34.2%)
Northwest Medical Center: 5%
Oro Valley Hospital: 2.7%
**Tucson Medical Center: 2.2%-2.5 %
The University of Arizona Medical Center - University Campus: 2%
The University of Arizona Medical Center - South Campus: (1.4%)
* Was absorbed by Carondelet St. Mary's in November 2012 and is no longer a stand-alone hospital
** Hospital estimate for 2012 calendar year
Source: Arizona Department of Health Services' most recent uniform hospital accounting report
Contact reporter Stephanie Innes at firstname.lastname@example.org or 573-4134.