Oregon hospitals, including those in the St. Charles Health System, enjoyed a banner year in 2015 as the Affordable Care Act drove down the number of uninsured patients and boosted hospital profits to their highest levels in more than a decade.

According to an Oregon Health Authority report released Wednesday, Oregon hospitals’ net income in 2015 rose by a combined $367 million, a 53.8 percent gain from 2014 and the single largest increase ever in back-to-back years. Those gains were driven primarily by a $342 million drop in charity care and bad debt, a 39 percent reduction from the previous year.

That led to a healthy 8.6 percent profit margin for hospitals statewide.

“This data definitely reinforces that the Medicaid expansion in Oregon has been successful and the ACA has resulted in gains both for Oregonians and for hospitals,” said Steve Ranzoni, hospital policy adviser for the OHA and a co-author of the report.

Under the Affordable Care Act, states could expand Medicaid with the federal government picking up the tab for most of the initial costs. Additionally, the health reform law instituted major reforms in the individual health insurance market, including allowing young adults to stay on a parent’s health plan until age 26 and eliminating denials for pre-existing conditions. That combined with subsidies for those who couldn’t afford insurance have driven uninsured rates in the U.S. to historic lows.

In Oregon, the percentage of uninsured dropped from 14.5 percent in 2013 to just 5.3 percent in 2015.

As more Oregonians gained coverage, fewer were unable to pay their bills, providing millions in additional revenue to hospitals.

According to the report, St. Charles Bend reported net income of $62.5 million and a profit margin of 12 percent in 2015. It was the hospital’s second straight year of double-digit profits, after seven years of margins ranging from 3.5 percent to 7.5 percent. Over the past two years, charity care provided by the hospital dropped from nearly $27 million to $8.2 million, while bad debt dropped from $18 million to $3.4 million.

Jennifer Welander, chief financial officer for the St. Charles Health System, said the healthy margins over the past two years have enabled the hospital system to upgrade to better meet the needs of the community going forward. In 2014, for example, St. Charles spent $61 million on technology, property and equipment, including building the new hospital in Prineville, building a new cancer center in Bend and refurbishing hospital rooms at St. Charles Bend to get them fully up to code. The hospital system has also invested in building its primary care capacity to handle the influx of patients who are newly covered because of the Affordable Care Act.

“We try to take the long-term view,” Welander said. “When there’s the opportunity to make the investment to help support the community, we do. And the past couple of years have enabled that.”

The healthy margins have allowed the system to catch up on needed upgrades that had been put off during leaner years after the 2008 financial crisis, when the system spent about $12 million to $14 million a year on such projects.

The ACA has also helped stabilize the finances of the other hospitals in the system. St. Charles Redmond recorded a net income of $10.7 million, with a 12 percent profit margin. St. Charles Madras had net income of $2.3 million, with a 7.3 percent profit margin, while St. Charles Prineville had net income of $4.8 with a 14 percent profit margin.

The Madras and Prineville hospitals operate under a special designation by Medicare and Medicaid that reimburses them for their costs. As more patients acquired Medicaid coverage, it had an even greater impact on their finances, Welander said. Both those hospitals had recorded net losses in four out of the previous five years.

The four St. Charles hospitals have seen a significant shift in the percentage of patients with coverage. Prior to the ACA, about 14 percent of patients had Medicaid coverage, while 4 to 6 percent were uninsured. Medicaid now accounts for 21 percent of patients, while the number of uninsured has dropped to 1 to 2 percent. Some 51 to 54 percent of patients have Medicare coverage, while the share of patients with commercial insurance has inched down from 27 to 25 percent.

Oregon hospitals have committed to maintaining the level of community benefit they provide even as the amount of charity care drops. St. Charles has pledged to maintain its $123 million in charitable spending, and has recently expanded its financial assistance program to more individuals who might have trouble paying their bills, even with insurance coverage.

The results in Oregon largely mirror the impact of the ACA in other states.

“In the states that expanded Medicaid, they were seeing drops in the share of patients who were coming in with no insurance, and sharp increases in the patients who were covered by Medicaid,” said Rachel Garfield, senior researcher with the Kaiser Family Foundation.

It’s still unclear, however, whether these trends will continue. Some have argued that some of gains in revenue represent a one-time bump as millions gain coverage for the first time. It’s unclear whether hospitals will see the same levels of revenue in future years once the pent-up demand has passed.

“We are noticing in the preliminary data in the first part of 2016 that these trends have started to shift back to their historic norms,” said Andy Van Pelt, executive vice president of the Oregon Association of Hospitals and Health Systems. “The system is adjusting to the changes and absorbing the new influx of insured patients.”

Furthermore, many hospitals are worried about various other incentive programs and subsidies that were put in place to smooth the transition to the post-ACA health care world, and may soon go away.

“I very much expect us to go back to normal,” Welander said. “And normal has been 3 to 4 percent operating margins.”

— Reporter: 541-633-2162,

mhawryluk@bendbulletin.com

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