Headlines can mislead us. The financial crisis that could close the
emergency room at the Med is a special case. Nonprofit hospitals in
Memphis make a lot of money, they’re expanding out of Memphis, and
their balance sheets are flush with cash.

The two giants are Baptist Memorial Health Care Corporation, with 32
percent of the Memphis market and rising, and Methodist Le Bonheur
Healthcare, with 37 percent of the Memphis market. St. Jude Children’s
Research Hospital specializes in childhood cancer and has a small share
of the market.

In a report in October affirming Baptist’s “AA” bond rating,
Standard & Poor’s noted that Baptist “has identified more than $933
million of fixed income and equity assets,” commonly known as stocks
and bonds. In the 11 months ending in August, Baptist’s revenues
exceeded expenses by $88 million, up from $36 million in 2006, when it
was in a slump. This year’s results and 5 percent operating margin have
far exceeded the hospital’s own forecast of an operating margin of less
than 1 percent.

Methodist isn’t doing quite as well but has a very strong balance
sheet and an “A” credit rating. According to its third-quarter
financial statement, Methodist has $711 million in cash, an increase of
$88 million this year. Patient service revenue increased by $23
million, or 2.6 percent over the same period last year. Methodist’s
operating margin is 4.5 percent, with operating income of $56 million
for the first nine months of 2009.

The term “nonprofit” as opposed to “for-profit” hospital systems
such as Tenet Healthcare, which has 14 percent of the Memphis market,
does not mean Baptist and Methodist don’t make a lot of money. They do,
even during a recession and a national “health-care crisis.” They don’t
pay taxes, because they each provided more than $275 million of charity
care last year, by their own accounting.

So did the Med. And if the Med cuts back or closes, that charity
care will have to go somewhere else. And there’s the rub. Charity care
is crucial for mission statements and tax exemptions but bad for
balance sheets and credit ratings. The founders’ vision is the
financier’s risk.

Baptist hospital was founded in 1912 by churchmen in Tennessee,
Arkansas, and Mississippi “to render quality health care to all in this
area in keeping with the tenets of our church.” Methodist’s mission is
“supporting and extending the health and welfare ministries of the
Memphis, Arkansas, and Mississippi annual conferences of the United
Methodist Church.”

For nearly a century, a Baptist hospital of some sort was a Medical
Center landmark, until its 20-story building between Union and Madison
was closed in 2000 and demolished in 2005. Baptist now has 14 hospitals
and one rehabilitation facility but nothing in the Medical Center. Its
growth has been in the suburbs and the tri-state region. Its board of
directors includes only one Memphian: president and chief executive
officer Stephen Reynolds.

This is how the audit and financial reports describe indigent care:
“Hospitals may be susceptible to economic and political changes that
could increase the number of indigents or the hospitals’ responsibility
for caring for this population.” And this: “The indigent care
communities could constitute a material and adverse risk in the
future.”

From this perspective, Methodist could be more “at risk” than
Baptist, because its hospitals are closer to indigent populations. In
addition to expanding its Germantown hospital, it is replacing Le
Bonheur on Dunlap. If the Med closes, Methodist could see its market
share increase but its revenues decrease as doctors and paying patients
migrate eastward and non-paying patients go to Le Bonheur or Methodist
University hospital on Union Avenue.

The Med has a proud 180-year history and a lousy balance sheet. In
1981, it was incorporated as the Regional Medical Center for indigent
care for a six-state area. In partnership with the University of
Tennessee medical school, it has trained more than half the physicians
practicing in Tennessee.

But it loses money. The Med lost $33 million from operations in
2005, $38 million in 2006, $39 million in 2007, and $40 million in
2008. The loss was partially offset by a contribution from Shelby
County government of $25 million to $31 million a year.

Hospitals are desirable talent magnets for cities, part of the “eds
and meds” equation. The issue is who’s going to take the hit for
indigent care?