Health Benefits Costs Rise in Not-for-profit Hospitals and Fall in For-Profit Hospitals

Hospitals Outperform Cross-industry Reductions in Health Benefit Costs

Franklin Trust Ratings Analysis: Reveals an increase in year-over-year health benefits expense in U.S. hospitals, and identifies stark differences between not-for-profit and for-profit hospitals. Hospitals outperform cross-industry national benchmarks.

Boston, November 1, 2016 – Total health benefit costs growth per employee enrolled in employer-sponsored health plans in U.S. hospitals grew at 1.2% to $8,836 per employee when measured at the median. Total benefit costs grew by 4.69% to $18,775 per employee during the same period. Total salaries grew by 4.9% to a median value of $60,684 per employee. The median cost of an employee working in a U.S. hospital for salary and benefits is now $79,459. Salaries and benefits account for approximately 44.9% of a hospital’s total operating expense, down from 45.9% in the prior year.

Overall, the Franklin Trust Ratings census of health benefit cost spending in hospitals reveals materially better performance than those reported in the Mercer National Survey of Employer-Sponsored Health Plans report on cross-industry performance. Hospitals outperform cross-industry performance for spending per employee and for rate of growth in spending. In the Mercer survey, health benefit costs per employee rose 2.4%, with an average cost of $11,920 per employee. Those cross-industry growth rates are twice the year-over-year increase seen in hospital expenditures, and those rates result in a 34.9% higher spending per employee than in hospitals.

Franklin BI™, the Web-based analytics tool used by hospitals and their advisors provides answers about the comparative performance of the US hospital industry. Franklin BI revealed additional benchmark findings:

Largest Increase and Decrease:

Not-for-profit hospital health benefits expense per FTE grew the most by 4.85% to $9,302 per FTE,

For-profit hospital health benefits expense per FTE declined the most by (1.7%), to $6,965 per FTE.

Other Performance by Hospital Peer Category:

Rural* hospital health benefits expense per FTE grew by 4.4%,

Urban* hospital health benefits expense per FTE grew by 4.37%,

Government hospital health benefits expense per FTE grew by 2.3%,

System-affiliated* hospital health benefits expense per FTE grew by 2.3%,

Teaching* hospital health benefits expense per FTE grew by 0.44%,

Freestanding* hospital health benefits expense per FTE declined by (1 .5%).

*Indicates peer category may overlap with other defined categories.

Median Values for Health Benefits Expense per FTE for Select Health Systems:

Catholic Health Initiatives: $7,952

Community Health Systems: $6,431

Dignity Health: $14,185

HCA Healthcare:  $7,186

Prime Healthcare: $7,116

Providence Health & Services:  $9,731

Quorum Health: $6,220

Steward Health Care System:  $9,883

Trinity Health: $6,881

Universal Health Services: $7,267

UPMC:  $5,625

“The U.S. Hospital Industry is under great pressure to reduce expenditures in an increasingly “at-risk” marketplace. This analysis reveals that hospitals are generally outperforming national trends on health benefit costs. Hospitals are in a much better position to disrupt the national trends given their position in managing health costs for at-risk populations.  Increasingly, health systems are entering the insurance business to disintermediate the middleman costs associated with population care services,” said John R. Morrow, Managing Director of Franklin Trust Ratings. When a hospital is “at risk” for Advanced Payment Models for patients, they are best suited to assume risk for employees.  UPMC, a hospital system that has embraced the insurance model has performance numbers that speak to the potential for continued savings.”

The data were compiled from the latest annual filings of Hospital Cost Reports with the federal government covering fiscal years 2014 – 2016. The latest data was obtained from the Centers for Medicare and Medicaid Services and was released on October 17, 2016. Data represent 4,000 general service community hospitals. Data are reported for hospitals larger than 25 beds. All values are medians.

Health Care and Insurance costs include: Health insurance, prescription drug plan, dental, hearing and vision plans, life insurance, accident insurance, disability insurance, long-term care insurance, workers’ compensation insurance, and retirement health care costs in the current year, (excluding the extraordinary accrual required by FASB 106). Figures are not adjusted for geographic wage variation.

About Franklin Trust Ratings, LLC. – The Company provides business intelligence to hospitals and their advisors about the comparative financial, operational, and clinical performance of the U.S. hospital industry.