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> The median operating margins for hospitals is around 0% or some times negative I found this page that seems to agree- https://www.definitivehc.com/resources/

> The median operating margins for hospitals is around 0% or some times negative I found this page that seems to agree- https://www.definitivehc.com/resources/healthcare-insights/hospital-operating-margins-united-states https://www.definitivehc.com/resources/healthcare-insights/h... That shows a negative median operating margin for the last 5 years. How can an industry carry on losing money like this? This must be only part of the story, right?

ndriscoll 2y ago
The answer is right in the OP: > More than half (55 percent) of all the income generated by 501(c)(3) organizations comes from tax-exempt hospitals and health-care plans. They can carry on losing money because they are often charities. Isn't a 0% or less margin what most people would naively expect for a charity?
- deleted 2y ago
  [deleted]
- unyttigfjelltol 2y ago
  Hospitals certainly appear to be operated for the benefit of physicians and administrators, and their compensation is an expense not profit. The relevant statistic is highly compensated leaders, not profit.
  - ndriscoll 2y ago
    True, though they'd still be paying payroll taxes. To me, it seems like the thing nonprofits could maybe let you "get away with" is building up an endowment that can fund sinecures, which could effectively turn it into a sort-of super IRA for the ultra-wealthy (i.e. with no required distributions for your beneficiaries after you die, you could have an effectively everlasting traditional IRA that your descendants control and could access through fake salaries). This has the side "benefit" of letting your descendants save face and pretend to have important charity work that they do as opposed to being a layabout that lives off great-grandpa's wealth. If you do it right, they might even believe it themselves!
  - FireBeyond 2y ago
    Many hospitals never employ a single physician. Or next to zero. Am a paramedic. All of the ED physicians in the Level 2 Trauma Center I take most patients to are not employed by the hospital, but by a collective called "XYZ Emergency Medical Providers". The hospital then (I don't know these details) contracts with the collective. I also believe, very similar to a union, that if the hospital wishes to hire a new provider, they may handle all the interviewing, but ask for the collective to hire them.
- EasyMark 2y ago
  You’d have to be pretty naive, I’d say a nonprofit still needs to save some money to handle the ebb and flow of just existing and to have some money tucked away. I’m not sure how that works since I’ve never been part of one, but there has to be a way, because it’s the only pragmatic approach to anything that lasts more than a few months.
mfer 2y ago
Healthcare systems costs and operations are a mess. Here are a few examples, hospital systems setup places that can do anything which adds complexity and increases costs. So, they are not cost optimized. The more a facility can do the more it costs to do any one thing. Hospitals loose money on many procedures while making some money back on others. There is also costs around staffing. For example, nursing schools aren't producing the growing number of nurses needed. Supply and demand kicks in.
asdfsdfas 2y ago
You're still seeing heavy consolidation in the industry which is a clue something fishy is going on-- why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones? The answer is hospitals target negative operating margins to meet various rules-- even though their "surplus" (ie profit) isn't taxed, it has to be near-0 to maintain non profit status. And, besides the normal games of revenue timing and amortization, they expense profitable activities to related parties.
- alephnerd 2y ago
  > why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones Not all networks are for-profit. By merging into larger networks, you allow hospital networks to consolidate the very expensive back-office processes like billing, insurance, IT, procurement, staffing, etc. All the intermediate "glue" needed for medical care has grown expensive due to either compliance or general profiteering, which forced consolidation in order to leverage economies of scale. This is why both for-profit and non-profit networks have been increasingly merging.
  - mistrial9 2y ago
    as an outsider to this system of systems, I don't think anyone understand all of the parts, or all of the dynamics going on.. details with factual references are very much appreciated on this weighty subject!
    - reboot81 2y ago
      From the other side of the pond: As my 10-year old summarized some time ago: ”the fire and rescue department needs fires, the police needs criminals and the hospitals need sick people. That’s kinda backwards!” If these functions in society receive public funding, are of public interest, there should not be any way it’s main objective is to create finacial profit.
- EasyMark 2y ago
  I agree, someone, somewhere is making money off this stuff and know how to hide it or all these hospital groups would be belly up in a few years. What’s even more scary is all the rural hospitals that are going bankrupt at an escalating pace (in the USA). I have lots of “country folk”relatives and I worry about them. The closest hospital to my mother Is 20 miles away, if that one shuts down the closest is 55 miles away. I have at least 5 within 5 miles of me, 2 of which are major regional surgical/oncology centers because I live in an urban area.
jandrese 2y ago
I think it means that administrators appear out of the woodwork to consume any potential profit a hospital may make.
yencabulator 2y ago
https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting

ndriscoll 2y ago

The answer is right in the OP: > More than half (55 percent) of all the income generated by 501(c)(3) organizations comes from tax-exempt hospitals and health-care plans. They can carry on losing money because they are often charities. Isn't a 0% or less margin what most people would naively expect for a charity?

deleted 2y ago
[deleted]
unyttigfjelltol 2y ago
Hospitals certainly appear to be operated for the benefit of physicians and administrators, and their compensation is an expense not profit. The relevant statistic is highly compensated leaders, not profit.
- ndriscoll 2y ago
  True, though they'd still be paying payroll taxes. To me, it seems like the thing nonprofits could maybe let you "get away with" is building up an endowment that can fund sinecures, which could effectively turn it into a sort-of super IRA for the ultra-wealthy (i.e. with no required distributions for your beneficiaries after you die, you could have an effectively everlasting traditional IRA that your descendants control and could access through fake salaries). This has the side "benefit" of letting your descendants save face and pretend to have important charity work that they do as opposed to being a layabout that lives off great-grandpa's wealth. If you do it right, they might even believe it themselves!
- FireBeyond 2y ago
  Many hospitals never employ a single physician. Or next to zero. Am a paramedic. All of the ED physicians in the Level 2 Trauma Center I take most patients to are not employed by the hospital, but by a collective called "XYZ Emergency Medical Providers". The hospital then (I don't know these details) contracts with the collective. I also believe, very similar to a union, that if the hospital wishes to hire a new provider, they may handle all the interviewing, but ask for the collective to hire them.
EasyMark 2y ago
You’d have to be pretty naive, I’d say a nonprofit still needs to save some money to handle the ebb and flow of just existing and to have some money tucked away. I’m not sure how that works since I’ve never been part of one, but there has to be a way, because it’s the only pragmatic approach to anything that lasts more than a few months.

mfer 2y ago

Healthcare systems costs and operations are a mess. Here are a few examples, hospital systems setup places that can do anything which adds complexity and increases costs. So, they are not cost optimized. The more a facility can do the more it costs to do any one thing. Hospitals loose money on many procedures while making some money back on others. There is also costs around staffing. For example, nursing schools aren't producing the growing number of nurses needed. Supply and demand kicks in.

asdfsdfas 2y ago

You're still seeing heavy consolidation in the industry which is a clue something fishy is going on-- why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones? The answer is hospitals target negative operating margins to meet various rules-- even though their "surplus" (ie profit) isn't taxed, it has to be near-0 to maintain non profit status. And, besides the normal games of revenue timing and amortization, they expense profitable activities to related parties.

alephnerd 2y ago
> why would a hospital system choose to grow for instance? where would the $$ come from to buy other ones Not all networks are for-profit. By merging into larger networks, you allow hospital networks to consolidate the very expensive back-office processes like billing, insurance, IT, procurement, staffing, etc. All the intermediate "glue" needed for medical care has grown expensive due to either compliance or general profiteering, which forced consolidation in order to leverage economies of scale. This is why both for-profit and non-profit networks have been increasingly merging.
- mistrial9 2y ago
  as an outsider to this system of systems, I don't think anyone understand all of the parts, or all of the dynamics going on.. details with factual references are very much appreciated on this weighty subject!
  - reboot81 2y ago
    From the other side of the pond: As my 10-year old summarized some time ago: ”the fire and rescue department needs fires, the police needs criminals and the hospitals need sick people. That’s kinda backwards!” If these functions in society receive public funding, are of public interest, there should not be any way it’s main objective is to create finacial profit.
EasyMark 2y ago
I agree, someone, somewhere is making money off this stuff and know how to hide it or all these hospital groups would be belly up in a few years. What’s even more scary is all the rural hospitals that are going bankrupt at an escalating pace (in the USA). I have lots of “country folk”relatives and I worry about them. The closest hospital to my mother Is 20 miles away, if that one shuts down the closest is 55 miles away. I have at least 5 within 5 miles of me, 2 of which are major regional surgical/oncology centers because I live in an urban area.

jandrese 2y ago

I think it means that administrators appear out of the woodwork to consume any potential profit a hospital may make.

yencabulator 2y ago

https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting