An important factor in a hospital’s profitability is "patient mix" — the percentages of a hospital’s patients whose care is financed by private insurance, Medicare, Medicaid or self-paying patients.

"Hospitals that are full of Medicaid and self-pay patients aren’t going to be doing well," said George Pillari, managing director of Alvarez & Marsal’s Healthcare Industry Group. Hospitals can make money on Medicare patients, Pillari said, and many of them do. "It depends upon whether you’re good at what you’re doing and manage your patient population well. But some hospitals chase high-care Medicare cases they’re not equipped to handle. Usually hospitals are better at procedures they do a lot of, so they should stick to what they do best."

Patient mix is a mixed bag in Tucson hospitals. University Medical Center (UMC) and especially University Physicians Hospital (UPH) get a disproportionate share of uncompensated care cases. (Bad debt at UPH in 2006 was $7.2 million, according to state Bureau of Public Health Statistics, while state data showed charity care at UMC was nearly $10.7 million in 2007.) In a memo to county officials in April 2007, Pima County Manager Chuck Huckelberry projected the bad debt at UPH would end the year at $20 million.

UPH began operations in the 1970s as Kino Community Hospital, a facility created primarily to fulfill the county’s legal obligation to provide health and behavioral health services to the indigent. It had a long history of carrying more than its share of the indigent load when the county signed a lease with UPH to privatize and upgrade the hospital in 2004. A change in law enabled Medicaid patients to go to whatever facility they chose, so Kino became underutilized and was offering less than full services, which further added to its losses.

UPH signed a 25-year lease agreement that included $127 million in funding from Pima County over 10 years to re-establish the hospital as a full-service hospital and outpatient treatment center. As part of the county’s agreement with UPH, the facility was to be reinvented as a full-service hospital, with facility and medical technology improvements, increases in medical staff and a physician residency program.

But in the meantime, it continued to serve more than its share of indigent patients. Because of the continuing losses, the county hired independent accounting firm Ernst & Young to review the hospital’s procedures. The firm concluded that UPH "has substantially complied with the lease requirements and in many areas has exceeded the expectations."

But in the report, Ernst & Young said bad debt was "the single largest contributor to the hospital’s loss" and pointed out that bad debt at UPH made up 12.8 percent of the hospital’s patient care costs — 3.5 times higher than UMC at 3.6 percent and Tucson Medical Center at 2.6 percent, the next highest carriers of bad debt.

Rather than paying the scheduled $10 million lease payment to UPH in 2007, Huckelberry said he was budgeting $21.5 million to help the facility cover its loss.

UPH has completely renovated the facility, investing nearly $9.5 million in ICU, radiology and operating room/anesthesiology improvements. UPH also is in the process of establishing itself as the area’s newest academic medical campus for the University of Arizona.

UPH also was recently named one of the 100 Best Value Hospitals in the United States as part of the Hospital Value Index, a comprehensive index measuring the relative value of care that hospitals provide to patients by analyzing more than 1,500 general acute-care hospitals in America’s 100 largest cities.

The county, the university and UMC have all expressed confidence in UPH’s ability to operate an efficient, full-service hospital.

But as Huckelberry concluded in his memo: "UPH continues to provide a disproportionate share of healthcare to the uninsured. This fact of life leads to annual operating losses at UPH Hospital in the range of $6 million to $8 million per year. The amount of indigent care provided at the hospital is approximately 5 times the average of other local and regional hospitals. An obvious solution to the uninsured population is not imminent. Hence, this will be a continuing issue to be addressed both by area hospitals, UPH in particular, and Pima County."