Hospitals boost operating margins with stocks, mergers and other investments

Though hospitals face financial challenges related to reimbursement and payment, some of the largest health systems in the country are bridging that financial gap with stocks, mergers and other investments.

Axios analyzed the financial filings for 84 of the largest nonprofit U.S. hospitals and systems and found that these providers made $14.4 billion on patient care, an operating profit margin of 2.7%. However, when stocks, bonds, accounting gains from mergers and other investments are included, profit rises to $35.7 billion, a profit margin of 6.7%. 

The American Hospital Association told Axios that the profit boost from Wall Street investments is crucial, as hospitals "need a positive margin to keep pace" with innovation in the industry. 

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For some health systems, the profit linked to investment is a significant portion of their income, the Axios analysis shows. Kaiser Permanente, for example, earned $1.9 billion in operating profit last year and $3.1 billion in total profit, meaning that more than 38% of its profits are tied to non-operating income, according to its financial filings (PDF). 

The amount of profit Kaiser earns from Wall Street is on the low end, too. Trinity Health posted an $18.1 million operating loss but earned $1.3 billion in total profit, meaning more than 100% of its profits came from non-operating income, according to its filings (PDF). 

More than three-quarters (75.7%) of UMPC's profits (PDF) are tied to non-operating income, as are nearly 70% of profits at Northwestern Memorial Healthcare, according to its financial documents (PDF). 

RELATED: How Brigham & Women's Hospital cut millions in costs 

Though a lack of competition may be one driver for this trend, the healthcare industry's "merger mania" shows no signs of slowing down. A Kaufman Hall analysis suggests that M&A activity this year is on pace to top that of 2016, including a number of blockbuster deals between major U.S. health systems. 

Since that report was released, multiple mergers between large systems have been revealed, including the union of Advocate Health Care and Aurora Health Care and the merger between Dignity Health and Catholic Health Initiatives.