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Beckers Hospital Review
Hospitals and health systems in the U.S. are undergoing a dramatic shift in their business models due to a number of forces that are expected to eventually turn the industry on its head — from providers concerned with the volume of services they provide, to providers who focus on offering high-value services that emphasize keeping populations healthy. For those unfamiliar with this shifting industry, or those who simply want to know more, here are 50 facts and statistics about the hospital industry in 2013.
1. There are 5,724 hospitals in the U.S., according to the American Hospital Association.1
2. Of these, 2,903 hospitals are nonprofit and 1,025 are for-profit. Additionally, 1,045 are owned by state or local (county, hospital district) government entities.1
3. Of all hospitals in the U.S., 1,984, or 35 percent, serve rural communities and are considered rural hospitals.1
4. Of rural hospitals, 1,328 have been designated as Critical Access Hospitals by CMS.2 CAHs are rural hospitals with no more than 25 beds and are at least 35 miles (15 miles in areas with mountainous terrain or only secondary roads) away from another hospital. CAHs are paid differently by CMS than traditional acute-care hospitals; their payments reflect their operating costs, rather than volumes.
5. Academic medical centers are hospitals and health systems with a close affiliation with a medical school. AMCs feature residency and often fellowship training programs and pursue clinical research in addition to direct patient care. They also often are considered tertiary care centers, because of their ability to treat a full range of complex conditions and access to subspecialists. There are currently around 400 AMCs in the U.S.3
6. Safety-net hospitals are a category of hospitals that provide a disproportionate level of charity care compared to other facilities.4 These hospitals receive Hospital Disproportionate Share Payments from CMS to help offset the cost of caring for large numbers of Medicaid, Medicare and uninsured patients who result in uncompensated care. The Patient Protection and Affordable Care Act calls for DSH payments to be significantly reduced over a period of years; this reduction was written into the law under the assumption that the expansion of Medicaid coverage would reduce the number of uninsured individuals, meaning safety-net hospitals would, in theory, have less uncompensated care costs to offset. However, the Supreme Court’s decision to make states’ expansion of Medicaid optional could create a financial challenge for safety-net hospitals in states that forgo expansion.
7. A slight majority of hospitals in the U.S. are part of a health system. According to the AHA, 3,007, or roughly 53 percent of hospitals are part of a health system.1 Note: Statistics from AHA’s Hospital Statistics, 2013 Edition reflect 2011 data. The number of hospitals in a system is likely higher today due to the large amount of merger and acquisition activity within the industry that has taken place since 2011.
8. In 2012, 94 mergers or acquisitions took place in the hospital industry worth a total of $1.88 billion, the highest value of M&A activity within the industry over the last decade, according to Irving Levin Associates.
9. For hospital sales/acquisitions occurring in 2012, the average price-to-EBITDA multiple was 9.5x, and the average price-to-revenue multiple was 0.76x, according to Irving Levin Associates. The average price-to-revenue multiples for distressed or bankrupt hospitals ranged from 0.3x to 0.4x.5
10. The five largest for-profit hospital operators include:Hospital Corporation of America (162 hospitals),Community Health Systems (135 hospitals),
Health Management Associates (71 hospitals), LifePoint Hospitals (57 hospitals) and
Tenet Healthcare Corp (49 hospitals).6
11. The five largest nonprofit hospital systems include:Ascension Health (100 hospitals), Catholic Health Initiatives (86 hospitals), CHE/Trinity (newly merged entity between Trinity Health in Novi, Mich., and Catholic Health East in Newton Square, Pa. — 82 hospitals), Adventist Health System (43 hospitals) and Dignity Health (38hospitals). 6
12. The five largest nonprofit hospitals in America (by bed count) are: NewYork-Presbyterian Hospital (New York City) — 2,292 beds; Florida Hospital Orlando — 2,141; Jackson Memorial Hospital (Miami) — 1,724; University of Pittsburgh Medical Center Presbyterian — 1,590; and Orlando (Fla.) Regional Medical Center — 1,483.6
13. The largest for-profit hospitals in America (by bed count) are: Methodist Hospital (San Antonio) — 1,536 beds; Edinburg (Texas) Regional Medical Center — 816; Henrico Doctor’s Hospital (Richmond, Va.) — 812; North Shore Medical Center (Miami) — 775 and CJW Medical Center – Chippenham Campus (Richmond, Va.) — 762.6
14. Hospitals vary greatly is size, from small rural facilities with just a few key service lines to large, tertiary care facilities. Here is a break out of U.S. hospitals by bed count in 2009, the latest year for which data is publicly available.7
6-24 bed — 402
25-29 beds — 1,164
50-99 bed — 991
100-199 beds — 1,063
200-299 beds — 582
300-399 beds — 348
400-499 beds — 192
500 beds or more — 266
15. There was an average of 111.8 inpatient hospitals admissions per 1,000 people in 2011, down from an average of 123.2 days in 1991. This data suggests on ongoing shift from inpatient to outpatient care, which has been driven largely by advances in minimally invasive surgical techniques as well as advanced anesthesia techniques that allow patients to recover more quickly from surgical procedures.8
16. The average length of stay for an acute-care hospital admission is 4.8 days.9
17. The average cost per inpatient day is $2,025 for nonprofit hospitals and $1,629 for for-profit hospitals.10
18. There was an average of 2,105.6 outpatient visits per 1,000 people in 2011, up from an average of 1,273.4 days in 1991, further supporting the trend of inpatient surgeries moving to the outpatient setting.8
19. Emergency departments are critical units within hospitals as they account for the majority of inpatient admissions. In 2010, there were 42.8 ED visits per 100 persons in the U.S., according to the CDC’s National Hospital Ambulatory Medical Care Survey. The number of emergency department visits resulting in hospital admission was 17.2 million, and number of emergency department visits resulting in admission to a critical care unit was 2.1 million.
20. EDs at half of all urban hospitals and 51 percent of all teaching hospitals are “at capacity” or “overcapacity,” according to a 2010 survey by the AHA.11
21. The American Hospital Association is the leading association representing U.S. hospitals. It is led by President and CEO Richard (Rich) Umbdenstock.
22. The Federation of American Hospitals represents for-profit, investor owned hospitals. It was founded in 1966 and is led by President and CEO Charles (Chip) Kahn.
23. America’s Essential Hospitals represents safety-net hospitals, including many large, urban facilities. It is led by President and CEO Bruce Siegel, MD, MPH.
24. A variety of factors have pressured hospital finances over the last several years, and these forces are unlikely to let up. In addition to the volume shift from inpatient to outpatient visits, the recession and growth in high-deductible heath plans and other health insurance benefit design elements that increases costs for consumers has resulted in some patients delaying or withholding medical care. For 2012, the latest data available, the average operating margin for a nonprofit hospital was 2.5 percent, according to Moody’s Investors Service.
25. In 2012, the average nonprofit hospital had 165 days cash on hand and a cash-to-debt ratio of 117.7 percent. However, cash-to-debt ratios vary widely in the industry:
- Median cash-to-debt ratio for “Aa2”-rated hospitals: 214.5 percent
- Median cash-to-debt ratio for “Aa3”-rated hospitals: 185.8 percent
- Median cash-to-debt ratio for “A1”-rated hospitals: 146.9 percent
- Median cash-to-debt ratio for “A2”-rated hospitals: 143 percent
- Median cash-to-debt ratio for “A3”-rated hospitals: 104 percent
- Median cash-to-debt ratio for “Baa1”-rated hospitals: 91.6 percent
- Median cash-to-debt ratio for “Baa2”-rated hospitals: 74.6 percent
- Median cash-to-debt ratio for “Baa3”-rated hospitals: 93 percent
- Median cash-to-debt ratio for hospitals with ratings below “Baa”: 107 percent12
26. The payment a hospital receives for the service it provides varies based on the payer. Governmental payers, including Medicare and Medicaid, set rates, and nearly every hospital chooses to accept them in order to have access to these patients. With commercial payers, hospitals can negotiate rates based on expected volume and other factors; however many commercial rates are set based on a percent of Medicare or some other formula that uses Medicare rates as a baseline figure. Therefore, cuts to Medicare rates may have a larger impact on hospital finances than just among Medicare patients.
27. The majority of patients treated by hospitals are covered by Medicare (40.9 percent of patients treated in U.S. hospitals). The average payer mix of a U.S. hospital is as follows:
- Medicare: 40.9 percent
- Medicaid: 17.2 percent
- Blue Cross Blue Shield, other private insurance: 16.5 percent
- HMO or PPO: 14 percent
- Self-pay: 4.9 percent
- Worker’s compensation and other government programs: 2 percent13
28. Nonprofit health systems receive tax-exempt status because of the benefits they provide to their communities. However, there has been greater scrutiny by lawmakers and the public in the past two to three years as to whether the tax breaks are equivalent to the level of charity care or other benefits provided by the hospitals. As part of the PPACA, the IRS has implemented stricter reporting requirements, and many state and local governments have are currently evaluating hospital tax breaks. (See: “Health Reform’s New Charity Care Requirements for Hospitals: Achieving Compliance to Avoid Penalties ” and “Charity Care and Property Taxes: Why They Are Now Inseparable.”)
Here is a break down on average level of total charity care at U.S. hospitals, as a percentage of total hospital expenses, according to an IRS analysis of hospitals’ 2009 Schedule H forms.
- Small hospitals (less than $100 million expense): 7.3 percent
- Medium hospitals ($100 million to $299 million expense): 8.0 percent
- Large hospitals ($300 million or more expense): 9.8 percent
- Systems (more than one licensed hospital): 9.3 percent
29. As part of the PPACA, hospitals agreed to roughly $155 billion in payment cuts from Medicare and Medicaid over 10 years. Further, the American Taxpayer Relief Act of 2012, better known as the fiscal cliff deal, brought on further cuts to hospital payment rates. Together, these adjustments will slow the growth of Medicare spending. However, hospitals will not actually be reimbursed a lower rate year-to-year. Instead, growth in Medicare payments will be slowed; they are expected to fall significantly under the inflation rate for the next decade. CMS’ proposed rule for 2014 payments provides just a 0.8% increase in Medicare inpatient payment rates over 2013.
30. Various reforms under the PPACA are slowly increasing the percentage of Medicare payment rates, under the formula CMS uses, that are tied to hospital performance. The PPACA implemented the hospital Value-Based Purchasing program, which in FY 2014 will tie 1.25 percent of hospital payments to their performance on various quality and patient experience indicators. Under the Hospital Readmissions Reduction program, hospitals would concede a maximum of 2 percent of Medicare payments for excessive readmissions in FY 2014. And, as the adage goes: “where Medicare goes, so goes private payers.” Many private payers have entered into various types of value-based contracts with providers. Recently UnitedHealthcare said it plans to double the number of its value-based contracts.
31. The financial impact of these value-based reforms is expected to have a significant impact on low-performing hospitals. For example, a 300-bed hospital with poor quality metrics would be penalized approximately $1.3 million a year, beginning in 2015, under CMS value-based reforms.14
32. The impetus for value-based care is driven by two core forces: 1) the rising cost of medical care and 2) the lack of predictable quality. In regard to the latter force, medical errors and healthcare-associated infections continue to occur at alarming rates in U.S. hospitals. According to a 2007 study by the CDC15 that examined hospital data from 2002, approximately 1.7 million HAIs occur annually. The number of estimated deaths associated with HAIs in U.S. hospitals was 98,987. Of these, 35,967 were for pneumonia, 30,665 for bloodstream infections, 13,088 for urinary tract infections, 8,205 for surgical site infections and 11,062 for infections of other sites. According to the CDC’s analysis of the study, “HAIs in hospitals are a significant cause of morbidity and mortality in the United States.”
33. Hospitals and health systems are entering into a variety of value-based payment models with CMS and private payers. Many value-based agreements with private payers are similar to CMS’ VBP program where there are incentives for providing high-quality care that meets certain benchmarks. Others are more complex and may include accountable care organization arrangements, capitated payments for a patient over a set period of time, or bundled payments for certain medical and surgical services.
34. Accountable care organizations have proven a popular value-based model, at least in terms of systems willing to test their viability. ACOs were one of several programs created by the Center for Medicare & Medicaid Innovation, a center created and funded by the PPACA to pilot new patient care models intended to reduce costs and improve quality. CMS created several programs for ACOs, including the Medicare Shared Savings Program and the Pioneer ACO program. The CMMI also launched the Bundled Payments for Care Improvement Program, which will pay hospitals a bundled rate for certain hospital-based and outpatient services associated with selected DRGs.
35. ACOs are also now being operated by private payers. In February 2013, Leavitt Partners estimated there were a total of 428 ACO programs across 49 states and 32 such arrangements created within 22 different health plans.
36. Because of demands to lower costs, improve quality, coordinate care and improve population health, hospitals are concerned with their alignment with physicians. Physicians, after all, control most testing and treatment decisions, and their goals must be aligned with those of the health system for success. To achieve this, health systems look to clinically integrate with physicians, which can be achieved through a variety of models ranging from employment to operating a management service organization for independent physicians.
37. Despite the variety of models available to achieve clinical integration, physician employment has risen in popularity, likely because it eliminates many legal hurdles associated with hospital-physician relationships. According to the American Hospital Association, 45 percent of physicians were employed in 2012.
38. Employment varies greatly by physician specialty. For example, only 25 percent of specialists were employed in 2012, according to The Advisory Board. However, that was a significant increase from the 5 percent employed in 2000. A physician’s decision to accept employment seems largely driven by a sense of independence (something apparently more common among surgeons) and an ability to maintain income in a private practice setting. That is, specialties are much more willing to accept employment, and even seek it (in the case of many cardiologists), after receiving significant physician fee payment cuts from Medicare.
39. Anticipated physician shortages in certain areas of the country are also driving hospitals’ efforts to align with physicians. The Association of American Medical Colleges estimates the U.S. will have a shortage of 150,000 physicians by 2025.
40. When hospitals employ physicians, they often do so to prepare for managed care and other business purposes. However, hospital leaders should keep in mind physicians are quite expensive to employ, and in fact, increased regulations have made operating physician practices more expensive than in the past. Physician practice operating costs per FTE physician rose 63 percent from 1998 to 2008, according to the Medical Group Management Association. However, physicians often generate significant revenue for a hospital when employed. For example, an orthopedic surgeon generates a median revenue of $2.7 million for a hospital over the course of a year; median orthopedic surgeon compensation is $519,000 for the same time period, according to data from Merritt Hawkins. (See “51 Statistics on Physician Salaries vs. Hospital Revenue Generated.”)
41. The average debt-to-capitalization ratio for a nonprofit hospital in 2011 was 40.4 percent, according to Moody’s Investors Service. Due to the recession’s impacts on investment income and volume, many hospitals have reduced capital spending. For financially strapped organizations, access to outside funds for capital outlay can be challenging. As a result, the hospitals are unable to fund large expenses such as physician employment, electronic health record systems, and other capabilities required for success in a value-based, coordinated delivery system.
42. Most hospitals are moving toward implementing electronic health record systems and some have already fully implemented them. According to a 2012 KPMG survey, 50 percent of hospitals surveyed reported they were more than half-way to full EHR implementation.
43. Hospitals that successfully implement electronic health records and are able to demonstrate “meaningful use” of those records — according to CMS’ standards — will receive incentive payments. According to CMS, a hospital could earn $2 million more by successfully attesting meaningful use. The funding for these incentive payments was allocated by Congress in the American Recovery and Reinvestment Act of 2009.
44. Not surprisingly, 95 percent of U.S. hospitals participating in a survey by the American Hospital Association reported they plan to pursue meaningful use certification under the Medicare & Medicaid Electronic Health Records Incentive Program.16
45. The annual compensation of hospital and health system CEOs can often climb into the millions, with bonus and non-salary payments are included.
Here is a snapshot of hospital president/CEO pay in 2012, according to Mercer’s 2012 Integrated Health Networks Compensation Survey:
|Title||25th percentile||50th percentile||75th percentile|
|System president/CEO – Market base salary||$787,300||$917,500||$1,028,100|
|System president/CEO – Market total cash Compensation||$912,300||$1,131,600||$1,405,700|
46. For standalone hospital president and CEOs, the pay is reduced to reflect the fewer number of facilities overseen.
|Title||25th percentile||50th percentile||75th percentile|
|Stand-alone hospital president/CEO – Market base salary||$480,000||$613,500||$715,800|
|Stand-alone hospital – Market total cash compensation||$518,500||$620,000||$872,400|
47. Health system CFO pay in 2012, also according to Mercer’s 2012 Integrated Health Networks Compensation Survey, is detailed below:
|Title||25th percentile||50th percentile||75th percentile|
|CFO – Market base salary||$160,600||$204,900||$306,400|
|CFO – Market total cash compensation||$171,800||$227,700||$335,000|
48. Hospital and health system chief information officer compensation was slighter higher than CFO pay.
Here is a snapshot of CIO in 2012, according to Mercer’s 2012 Integrated health Networks Compensation Survey:
|Title||25th percentile||50th percentile||75th percentile|
|CIO – Market base salary||$239,500||$296,100||$362,400|
|CIO – Market total cash compensation||$250,700||$324,400||$415,400|
49. The number of hospitals in each state is influenced by population, of course, but also by other factors. State certificate of need laws are one of the biggest influencers of hospital development in a state. Certificate of need laws require that a state-governed board review and approve the development of any new healthcare facilities in the state. Generally, approval requires proof of need — that is, a current lack of access to healthcare services or a future one, due to projected population growth. For a summary of CON laws (or lack thereof) by state, click here.
50. The top five states with the most hospitals, according to Kaiser Health Facts,17 are:
- Texas — 426
- California — 343
- Florida — 210
- Pennsylvania — 196
- Illinois — 189
1 American Hospital Association. “AHA Hospital Statistics, 2013 Edition.”
2 Rural Health Research Centers at the Universities of Minnesota, North Carolina-Chapel Hill, and Southern Maine. “CAH List.” Available online at http://www.flexmonitoring.org/cahlistRA.cgi
3 PWC. “Academic Medical Centers.” Available online at http://www.pwc.com/us/en/health-industries/providers/services-solutions/academic-medical-centers.jhtml
4 America’s Essential Hospitals. “About Our Members.” Available online at http://www.naph.org/Main-Menu-Category/About-NAPH/About-Our-Members/what-is-a-safety-net-hospital.aspx
5 Irving Levin Associates. “Health Care Services Acquisition Report, 2012.”
6 Figures are based on CMS cost report data analyzed by American Hospital Directory. Note: The hospital bed counts reported here include all medical/surgical and special care beds as reported to CMS by the hospitals in their most recent cost reports and, in some cases, may include bed counts from other facilities that share a provider number with the main hospital.
7 Centers for Disease Control and Prevention. “Table 116. Hospitals, beds, and occupancy rates, by type of ownership and size of hospital: United States, selected years 1975–2009.” Available online at http://www.cdc.gov/nchs/data/hus/2011/116.pdf
8 Avalere Health. Analysis of American Hospital Association Annual Survey data, 2011, for community hospitals. U.S. Census Bureau: National and State Population Estimates, July 1, 2011.
9 National Hospital Discharge Survey: 2010 table, Number and rate of hospital discharges.
10 Kaiser State Health Facts, 2012.
11American Hospital Association (May, 24, 2010). “The State of America’s Hospitals: Results of AHA Survey of Hospital Leaders, March/April, 2010.”
12 Source: Moody’s Investors Service, “U.S. Not-for-Profit Hospital Medians Show Operating Stability Despite Flat Inpatient Volumes and Shift to Government Payers,” August 2012.
13 Centers for Disease Control and Prevention. “National Hospital Discharge Survey.” Figures reflect payor mixes from 2009, the latest year available.
14 PWC Health Research Institute. “Health Reform: Prospering in a Post-reform World.”
15 Centers for Disease Control and Prevention. “Estimating Health Care-Associated Infections and Deaths in U.S. Hospitals, 2002” Available online at http://www.cdc.gov/HAI/pdfs/hai/infections_deaths.pdf.
16 American Hospital Association. “AHA Survey on Hospitals, Ability to Meet Meaningful Use Requirements of the Medicare and Medicaid Electronic Health Records Incentive Programs, February 7, 2011.”
17 The Henry J. Kaiser Family Foundation. State Health Facts. Available online at http://kff.org/other/state-indicator/total-hospitals.