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Report: Texas Hospitals are Becoming Less Profitable


Hospital profits have been on the rise for years, but 2017 saw dividends down for healthcare providers in Texas, according the the Texas Health Market Review. Fewer insured individuals and HMOs that lost money were partly to blame for the losses.

Allan Baumgarten has been publishing the reviews since 1998, analyzing hospital systems and insurers across Texas and other states. He looks at the impact of the Affordable Care Act and other factors that contribute to the direction of the market. He noted that young people are less likely to care about a relationship with a physician than in past generations, and they are opting out of health insurance and utilizing healthcare, cutting into system profits. “The older generation used care a lot, but it is being replaced by a generation that picks and chooses where and how it gets care,” Baumgarten says.

“2016 were good times for hospitals and health insurers, which both benefitted from Affordable Care Act,” Baumgarten says. “Profitability is still strong but less. There is an erosion from insurance gains and more people without insurance.”

The report says that in the Dallas-Fort Worth region, average hospital margins dipped from 14.1% in 2015 to 12.7% in 2017. Net income took a hit from $2.597 billion in 2015 to $2.54 billion in 2017. Despite the profit reductions, the report says that systems still emphasized growth through acquisitions, new construction and partnerships. Baylor Scott and White, which is the second-largest health system in the state, is looking to merge with Memorial Hermann, creating the largest network statewide. The added size of these networks allow them to have increased leverage for demanding higher payment rates from insurers. On the other hand, Dallas-based Tenet Health sold off many of its hospitals in the state.

While new facilities continue to be built, the report describes how inpatient utilization growth is slowing, and hospital days have grown by less than two percent that last two years in Dallas Fort Worth.

In the world of insurance, Texas saw a growth of more restrictive HMO plans. HMO enrollment grew by 3.3 percent in 2017, with 5.5 million now in the plans according to the report. But as more people enter into the HMO plans, they have become less profitable overall. Texas HMOs lost $18.2 million in 2017 after posting a $432.8 million income in 2015. Medicaid HMOs like Amerigroup and Superior HealthPlan earned profits, but HMO Blue Texas (administered by Blue Cross Blue Shield) lost $109.5 million in 2017. Baumgarten mentioned that Blue Cross Blue Shield dropped most of its PPO plans in recent years.