Top 10 most profitable hospitals around Indianapolis

Note: While the rank order of hospitals' profits in this post is accurate based on 2012 financial results, the actual profit margins below may appear abnormally high because of three key things: 1) Many hospitals received a special settlement payment from Medicare in 2012 that was not repeated in other years; 2) Indiana hospitals in 2012 received 18 months worth of state payments from a program known as the Hospital Assessment Fee, rather than 12 months of payments; and 3) Most of the hospitals' financial results in this post do not include losses they incurred in their employed-physician practices. Those losses are accounted for separately, in most cases.–J.K. Wall

No wonder St. Vincent Health is building a 96,703-square-foot women’s health addition to its Carmel hospital.

That campus is the second-most profitable hospital in central Indiana, according to the latest fiscal reports filed by most hospitals with the Indiana State Department of Health. Excluding its accounting charges for depreciation and amortization, St. Vincent Carmel is generating a 31 percent profit from its operations.

Not bad for a “not-for-profit” hospital, huh?

I lined up the 2012 financial results of 30 hospitals, located in an area that stretches from Lafayette to Bloomington, over to Columbus and up to Muncie. I compared them by excluding depreciation and amortization, since those on-paper charges can vary considerably based on the age of the hospital.

The results, as you can see here, didn’t exactly match my expectations.

Ten Most Profitable
1.    Indiana Orthopaedic Hospital: 35.1 percent
2.    St. Vincent Carmel Hospital: 30.9 percent
3.    Community Hospital-Anderson: 28.3 percent
4.    Franciscan St. Elizabeth Health-Crawfordsville: 24.9 percent
5.    Franciscan St. Francis Health-Mooresville: 24.3 percent
6.    Community Heart Hospital: 22.4 percent
7.    Indiana University Health West: 21.4 percent
8.    St. Vincent Heart Center of Indiana: 21.4 percent
9.    Community Hospital North: 21.0 percent
10.    Franciscan St. Francis Health-Indianapolis: 19.0 percent

It’s no surprise that the orthopedic hospital was on top—hip and knee replacements are still highly lucrative procedures. Keep in mind, however, that the orthopedic surgeons that run that lucrative hospital, pay taxes on their earnings.

Nor is St. Vincent Carmel much of a surprise. It derives nearly 85 percent of its revenue from private, rather than government, sources. That’s the highest in all of central Indiana.

(Full disclosure: I have handed a chunk of money to St. Vincent Carmel via my employer sponsored, health savings account-based insurance policy with Anthem Blue Cross and Blue Shield. That is where both of my sons were born.)

But after the top two, things get interesting. Consider that the next three hospitals are in Anderson, Crawfordsville and Mooresville. Mooresville makes sense because Franciscan has its orthopedic surgeons stationed there.

But Crawfordsville is a surprise to me, especially considering how poorly the hospital in the very similar community of Greencastle—Putnam County Hospital—is doing, as you can see here.

Ten Least Profitable
21. Community Hospital East: 12.5 percent
22. Hendricks Regional Health: 11.2 percent
23. Columbus Regional Hospital: 10.1 percent
24. St. Vincent Hospital-Anderson: 8.1 percent
25. IU Health Arnett: 7.9 percent
26. Johnson Memorial Hospital: 7.9 percent
27. St. Vincent Indianapolis Hospital: 7.7 percent
28. Riverview Hospital: 6.1 percent
29. Putnam County Hospital: 0.7 percent
30. Eskenazi Health: -23.6 percent

Anderson is both surprising and isn’t. It's not Indiana's wealthiest city, by any stretch. But in 2009, Anderson ranked highest in the nation for spending by employer-sponsored health plans—$7,231 per person per year.

But it’s interesting to me that Community is cleaning up in Anderson, where it competes directly against St. Vincent, but its Indianapolis hospitals are in the middle of the pack.

And St. Vincent, in spite of having bottom 10 hospitals in Anderson and Indianapolis, is dominating in Hamilton County, the fiercest hospital market of all.

St. Vincent was the first of the Indianapolis-based hospitals to open a hospital in Carmel—way back in 1985. And that appears to have paid off.

Riverview Hospital in Noblesville seems to be struggling a bit in the midst of all the competition, which now includes both IU Health and Franciscan, as well as St. Vincent.

IU Health North, while lucrative, is still well back from St. Vincent, as you can see here:

The Middle 10
11.    IU Health North: 18.1 percent
12.    Community Hospital South: 18.0 percent
13.    St. Joseph Hospital (Kokomo): 17.8 percent
14.    Franciscan St. Elizabeth Health-Lafayette (East & Central): 17.6 percent
15.    IU Health Bloomington: 17.6 percent
16.    IU Health Downtown (Methodist-University-Riley): 17.4 percent
17.    Major Hospital (Shelbyville): 16.5 percent
18.    IU Health Morgan (Martinsville): 15.0 percent
19.    Witham Health Services (Lebanon): 14.5 percent
20.    IU Health Ball Memorial (Muncie): 13.2 percent

If you tally all these up, you’ll find that just seven of these 30 hospitals have profit margins on their core business of less than 10 percent.

The hospitals may object that I excluded their depreciation and amortization. And they have a valid point, because those hospitals’ investments in buildings and equipment have been critical to their ability to earn these profits.

But I looked at the numbers this way, somewhat following the path taken by Steven Brill in his Bitter Pill article last year, because it allows us to see how much hospitals are making on their core medical services.

When depreciation and amortization are added back in, 17 of the 30 hospitals had profit margins in the double digits.

Either way, it shows that hospitals in and around Indianapolis were doing quite well. At least in 2012. We’ll see how they did in 2013, once those reports become public.

Two notes on my calculations

I calculated profit on operations by taking the excess revenue over expenses generated by each hospital, which excludes any gains from investments or other non-operating gains. I then subtracted the expenses attributed to depreciation and amortization. The number I got from that calculation, I then divided by each hospital’s total operating revenue to generate an operating margin. You can see all my numbers in this spreadsheet.

Community's Howard Regional and Westview hospitals are not included in my analysis because the state has not posted a 2012 fiscal report for them. The same goes for Hancock Regional Hopsital in Greenfield.