Arizona Hospitals Reaped $1.5 Billion Profit Last Year Article originally posted on HERE on October 18, 2021 Banner Gateway Medical Center recorded one of the biggest increases in year-over-year profits in 2020 among Arizona hospitals with a total profit of $96.7 million – $29.4 million over 2019. Arizona hospitals overall saw huge increases in their profits during last year. New figures from the Arizona Health Care Cost Containment System show total profits topped $1.5 billion – 33 percent above 2019 and far above anything reported in the past decade. It also found nearly 75 percent of hospitals with a positive operating margin. While there have been higher figures in the past, that is still up 4.5 percentage points from the prior year. The average profitability was $13.9 million. There are vast differences even among hospitals under the same management. Banner Desert Medical Center in Mesa, for example, posted a net operating profit of more than $153 million on total revenues in excess of $802 million for a net operating margin of 19.1 percent. And Banner Thunderbird has a $96.7 million profit with a net operating profit of 16 percent. But Banner University Medical Center in Tucson actually posted a nearly $5.5 million loss on revenues of more than $866 million. Still, the hospital is in a far better financial condition that 2019, when it lost almost $55 million. All this comes against the backdrop of COVID. During 2020, Gov. Doug Ducey imposed a ban on elective surgeries, at least in part to ensure that there was an adequate supply of personal protective equipment. That drew some criticism from the Arizona Hospital and Healthcare Association, which said members were hemorrhaging money because they lost the more financially lucrative business like knee and hip replacements. And then there was the cost of all that personal protective equipment. Marjorie Baldwin, a professor of economics at the W.P. Carey School of Business at Arizona State University, said there is another side to all this. It starts, she said, with the change in the mix of patients. “Typically, hospitals treat a majority of older patients on Medicare,’’ said Baldwin, a health economist. By contrast, COVID provided a larger mix of younger patients that might otherwise not be in a hospital. The private insurance these patients often have pays more than Medicare. Moreover, hospitals are not racking up the same losses for “uncompensated care,’’ bills not paid by people without either government or private insurance and who lack the financial resources to pay their bills. That’s because the federal government agreed to pick up the cost for treating COVID for anyone without insurance. “That’s a huge effect on profits,’’ Baldwin said. On top of that there were various federal subsidies to hospitals to help deal with the costs incurred of treating COVID patients. But potentially the biggest thing has to do with medical billing and something called “diagnosis-related groups,’’ or DRGs. That system, already in use by Medicare, pays hospitals based on the DRG. That is designed to both standardize payments and encourage cost containment as a hospital knows it will be getting a specific set amount to treat a specific ailment. But Baldwin said if a patient was diagnosed with COVID, there is a surcharge that hospitals are allowed to impose. That surcharge is built on the assumption that COVID patients will require a certain level of care. “But some COVID patients might not require ICU care or the intense care that the subsidy was designed to cover,’’ she said. “And so hospitals could make a profit on those patients.’’ Baldwin said a patient who actually tests positive for COVID actually might be admitted to the hospital for some other reason “but the hospital could still put that they have the COVID diagnosis and get the reimbursement.’’ “And there’s strong incentives for hospitals to do that,’’ she added. Baldwin said large urban hospitals already were in a better position to deal with COVID. That is reflected in those numbers for Banner Health, the largest hospital system in the state, and, specifically, in their larger facilities. A spokeswoman for Banner said staffers were still reviewing the numbers and declined comment on the report.