Advocate Aurora Health is down $601M year to date as it gears up for Atrium Health megamerger

While Advocate Aurora Health’s year-to-date operating income sits at $51.2 million, $666 million in investment declines weigh heavy on its bruised bottom line.

Following a tight first quarter, Advocate Aurora Health managed to grow its operating margin but still landed negative due to $400 million in investment losses during the quarter ended June 30, according to financial filings.

The 27-hospital nonprofit—which pending regulatory review slated to merge with Atrium Health in one of the year’s biggest hospital transactions—reported a $48.7 million operating income during its second fiscal quarter of 2022 (1.7% margin).

This is up from the $2.5 million (0.3% margin) it scraped out earlier this year but well below the $213.7 million (6.5% margin) of Q2 2021.

Revenues for the quarter increased 1.5% year over year to more than $3.5 billion. While patient service revenue and other revenue both grew by tens of millions, capitation revenue declined slightly due to a shift in overall membership mix and a 6.1% dip in capitated lives, the system wrote in its filing.

Discharge volumes fell 7.7% year over year during the most recent quarter, as did home care visits by 7.6%. The system saw increases compared to the previous year among its observation cases (11.6%), hospital outpatient visits (2.1%) and physician visits (7.1%).

Advocate Aurora’s expenses grew at a faster rate, at 6.7% year over year during the second quarter. The increase was led by a 10.2% jump in salaries, wages and benefits payouts, which the system said was fueled by a blend of higher nurse agency costs, higher merit and premium pay for clinical care and volume-driven demand for more full-time equivalent employees.

The nonprofit saw last year’s investment gains largely upended, recording a $400 million net loss during the quarter compared to the $571.6 million gain of the prior year’s equivalent quarter.

The shortfall dragged Advocate Aurora’s net income to a $347.6 million loss for the quarter. It had logged a $545.6 million gain the previous year.

Looking at six-month numbers, the health system reported $7.1 billion in total revenue and $7 billion in total expenses for an operating income of $51.2 million. Year-to-date investment losses landed at $666 million, bringing the organization to a $600.8 million net loss.

Advocate Aurora was formed in 2018 from the merger of nonprofits Advocate Health Care and Aurora Health Care. It treats 2.6 million unique patients, employs 75,000 people and logged just under $14.1 billion in total revenue across 2021 and a net income of more than $1.8 billion.

Should its merger plans go through, Advocate Aurora and Atrium Health would control 67 hospitals and $27 billion of combined revenues across six states. The deal is anticipated to close before the end of the year, according to the earnings filing.

The system’s latest numbers will come as no surprise in light of similar quarterly reports from Advocate Aurora’s nonprofit contemporaries.

Investment struggles and increased expenses were reported across the board, although not every major system was able to keep operations in the black. Mayo ClinicKaiser Permanente and UPMC were among those on the stronger side of the scale while Sutter HealthMass General Brigham and Providence each reported tens to hundreds of millions in operational losses.

Fitch Ratings warned last week that these sector-wide challenges are unlikely to vanish during the remainder of the year. As such, the agency has downgraded its outlook for the nonprofit hospital industry from “neutral” to “deteriorating.”

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