Financial updates from Banner, Kaiser, Mayo + 3 other health systems

https://www.beckershospitalreview.com/finance/financial-updates-from-banner-kaiser-mayo-3-other-health-systems.html?origin=cfoe&utm_source=cfoe

The following six health systems recently released their financial statements for the nine-month period ended Sept. 30:

1. Phoenix-based Banner Health’s revenue climbed 7.2 percent year over year to $6.3 billion in the first nine months of 2018. The system ended the first nine months of this year with operating income of $122.1 million, down 37 percent from $192.9 million in the same period a year earlier.

2. Oakland, Calif.-based Kaiser Permanente’s revenue climbed to $59.7 billion in the first nine months of 2018, up 9.6 percent from revenue of $54.5 billion in the same period of 2017. Kaiser ended the first nine months of this year with operating income of $2.03 billion, compared to $2.33 billion in the same period of 2017.

3. Rochester, Minn.-based Mayo Clinic ended the first nine months of 2018 with revenue of $9.5 billion, compared to $8.8 billion in the same period of 2017. The system reported operating income of $601 million in the nine months ended Sept. 30, up 32 percent from the same period of 2017.

4. Bronx, N.Y.-based Montefiore Health System recorded revenue of $4.4 billion in the nine months ended Sept. 30, up from $4.1 billion in the same period a year earlier. The system ended the first nine months of this year with operating income of $59.6 million, up from $37.7 million in the same period of the year prior.

5. Arlington-based Texas Health Resources recorded revenue of $3.5 billion in the first nine months of 2018, up from $3.4 billion in the same period a year earlier. The system ended the first nine months of this year with operating income of $168.7 million, down from $174.5 million in the same period of 2017.

6. Pittsburgh-based UPMC reported revenue of $13.9 billion in the first nine months of this year, up from $11.4 billion in the same period of 2017. The system ended the first nine months of 2018 with operating income of $190 million, down from $196 million in the same period of 2017.

 

Partners HealthCare’s annual operating income soars 489%

https://www.beckershospitalreview.com/finance/partners-healthcare-s-annual-operating-income-soars-489.html?origin=rcme&utm_source=rcme

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Boston-based Partners HealthCare saw its operating income rise in fiscal year 2018 despite a decline in revenues, according to financial documents released Dec. 7.

Partners saw operating revenues dip 0.5 percent year over year to $13.31 billion in fiscal year 2018, which ended Sept. 30. The health system’s significant growth in provider revenues was partially offset by a decline in insurance revenue. Partners said the decrease in insurance revenue was attributable to the transition of members from Medicaid managed care programs into the new MassHealth ACO program in March.

After accounting for a 2.4 percent decrease in expenses, Partners ended fiscal 2018 with operating income of $309.9 million. That’s up 489 percent from a year earlier, when the health system posted operating income of $52.57 million.

Partners reported a 2.3 percent operating margin for fiscal 2018, up from a 0.4 percent operating margin in the year prior.

“While a 2-3 percent margin is slim compared to our peers across the nation, it enables us to reinvest in patient care and provide for the future capital needs of our hospitals and facilities,” said Peter K. Markell, treasurer and CFO of Partners.

After factoring in nonoperating income, Partners ended fiscal 2018 with net income of $826.6 million, up from $659.1 million in fiscal 2017.

 

 

Hospital Operating Income Falls for Two-Thirds of Health Systems

https://revcycleintelligence.com/news/hospital-operating-income-falls-for-two-thirds-of-health-systems?eid=CXTEL000000093912&elqCampaignId=7597&elqTrackId=e8b767871da64811acdd5707ff64a771&elq=8c464455b5764b358a94a8541d0fc832&elqaid=8029&elqat=1&elqCampaignId=7597

Hospital operating income and health systems

Hospital expenses are rising faster than revenue growth for health systems, resulting in declining operating income.

Health system operating income is deteriorating as hospital expenses continue to grow, according to a recent Navigant analysis.

In the three-year analysis of the financial disclosures for 104 prominent health systems that operate almost one-half of US hospitals, the healthcare consulting firm found that two-thirds of the organization saw operating income fall from FY 2015 to FY 2017. Twenty-two of these health systems had three-year operating income reductions of over $100 million each.

Furthermore, 27 percent of the health systems analyzes lost revenue on operations in at least one of the three years analyzed and 11 percent reported negative margins all three years.

In total, health systems facing operating earnings reductions lost $6.8 billion during the period, representing a 44 percent reduction.

Rapidly growing hospital expenses as the primary driver of declining operating margins, Navigant reported. Hospital expenses increased three percentage points faster hospital revenue from 2015 to 2017. Top-line operating revenue growth decreased from seven percent in 2015 to 5.5 percent by 2017.

Hospital revenue growth slowed during the period because demand went down for key hospital services, like surgery and inpatient admissions, Navigant explained.

Many of the revenue-generating services hospitals rely on are under the microscope. Policymakers and healthcare leaders are particularly looking to decrease the number of hospital admissions and safely shift inpatient surgeries to less expensive outpatient settings.

In exchange, Medicare and other leading payers are reimbursing hospitals for decreasing admissions or readmissions and their performance on other value-based metrics.

The shift to value-based reimbursement, however, is slow and steady, with just over one-third of healthcare payments currently linked to an alternative payment model. Hospitals and health systems are still learning to navigate the new payment landscape while keeping their revenue growing.

Value-based contracts also failed to deliver sufficient patient volume to counteract the discounts given to payers, Navigant added.

According to the firm, other factors contributing to a slowdown in hospital revenue growth included a decline in collection rates for private accounts and reductions in Medicare reimbursement updates because of the Affordable Care Act and the 2012 federal budget sequester.

“Because of reductions in Medicare updates from ACA and the sequester, hospital losses in treating Medicare patients rose from $20.1 billion in 2010 to $48.8 billion in 2016, according to American Hospital Association analyses,” the report stated. “The sharp $7.2 billion deterioration in Medicare margins that occurred from 2015 to 2016 surely contributed to the reduction in hospital operating margins in the same year of this analysis.”

While hospital revenue growth slowed, hospital expenses sharply rose as healthcare organizations invested in new technologies. Value-based reimbursement, federal requirements, and other components of the Affordable Care Act prompted hospitals to make strategic investments in EHRs, physicians, and population health management, causing expenses to increase, Navigant stated.

Key strategic investments made by hospitals and health systems included:

  • Compliance with the 2009 Health Information Technology for Economic and Clinical Health (HITECH) Act, which requires certified EHR implementation in hospitals and affiliated physician practices
  • Compliance with Medicare payment reform initiatives, such as accountable care organizations (ACOs) or pay-for-performance programs
  • Participation in new value-based contracts with payers
  • Establishment of employed physician groups or clinically integrated networks to develop the capabilities needed for compliance with performance- or value-based initiatives

“In addition to these strategic investments, other factors drove up routine patient care expenses, including a nursing shortage that increased nursing wages and agency expenses; specialty drug costs, particularly for chemotherapeutic agents; and, for some systems, recalibration of retirement fund costs,” the report stated.

The shift to value-based reimbursement and all of its accompanying policies will be the “new normal,” and hospitals should expect the low rate of revenue growth to persist, Navigant stated.

But hospitals and health systems can withstand the economic downturn by achieving strategic discipline and operational excellence, the firm advised.

“Systems must be disciplined to invest their growth capital in areas of actual reachable demand; that is, matched to the growth potential in the specific local markets the system serves,” the report stated. For example, creating a Kaiser-like closed panel capitated health offering in markets where there is no employer or health plan interest in buying such a product is a waste of scarce capital and management bandwidth.”

In line with strategic discipline, organizations will need to “prune” their owned assets portfolio by improving the utilization of their clinical capacity and growing patient throughput. Health systems can achieve this by focusing on scheduling and staffing, ensuring adherence to clinical pathways, streamlining discharges and care transitions, and adjusting physical capacity to actual demand.

The tools used to succeed in value-based contracts should also be applied to Medicare lines of business to reduce Medicare operating losses.

Additionally, vertical alignment will be key to weathering falling operating earnings, Navigant explained.

“Revenue growth is more likely to occur around the edges of the hospital’s core services — inpatient care, surgery, and imaging — rather than from those services themselves,” the report stated. “Creatively repackaging services like care management that is presently imbedded in every aspect of clinical operations, and finding retail demand for services presently bundled as part of the hospital’s traditional service offerings, represent such edge opportunities.”

Reducing patient leakage in multi-specialty groups and systems through improved referral patterns, scheduling, or care coordination will help to grow revenue and keep it within the system.

“To achieve better performance, health system management and boards must take a fresh look at their strategy considering local market realities. They need to look closely at the markets they serve, and size and target their offerings to actual market demand,” the report concluded. “They must re-examine and rationalize their portfolio of assets and demand marked improvements in efficiency and effectiveness, and measurable value creation for those who pay for care, particularly their patients. Since much of this should have been done five years ago, time is of the essence.”

Vanderbilt University Medical Center points to Epic rollout for 60% drop in operating income

https://www.beckershospitalreview.com/finance/vanderbilt-university-medical-center-points-to-epic-rollout-for-60-drop-in-operating-income.html

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Nashville, Tenn.-based Vanderbilt University Medical Center saw revenues increase in the first nine months of fiscal year 2018, but the hospital ended the period with lower operating income.

Here are four things to know about the hospital’s most recent financial results.

1. VUMC reported revenues of $3.04 billion in the nine months ended March 31, up from revenues of $2.85 billion in the same period of the year prior, according to recently released bondholder documents. The hospital said the financial boost was primarily attributable to higher net patient service revenue, which climbed 5 percent year over year.

2. The hospital’s operating expenses increased 9 percent year over year to nearly $3 billion in the first nine months of the current fiscal year. The hospital’s expenses related to salaries, wages and benefits, as well as drug and supplies costs, increased year over year.

3. “The increase in salaries, wages and benefits is primarily due to increased staffing to meet additional demand associated with higher net patient service revenue, research contracts, and training costs for staff related to our EMR system implementation,” VUMC said. Higher consulting and management fees related to the Epic EMR implementation also caused the hospital’s expenses to rise.

4. VUMC ended the first nine months of fiscal year 2018 with operating income of $44.4 million, down 60 percent from $110 million in the same period a year earlier. The decline was largely attributable to higher expenses related to the rollout of the new EMR system. The hospital said it planned for future operating income reductions due to the implementation.

“We successfully completed our EMR implementation in November and we anticipate the new system will yield future efficiencies,” VUMC said. “However, in the year of implementation, increased operating expenses related to implementation caused a reduction in operating income. The EMR implementation put pressure on clinical volumes in the post-live period. Although we have achieved net patient services revenue in excess of our budget, the implementation has muted volumes.”

 

CHI’s operating loss widens in Q3, but finances improve over longer term

https://www.beckershospitalreview.com/finance/chi-s-operating-loss-widens-in-q3-but-finances-improve-over-longer-term.html

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Englewood, Colo.-based Catholic Health Initiatives saw its operating loss widen in the third quarter of fiscal year 2018, but the health system’s financial picture improved over the first nine months of the fiscal year.

CHI’s operating revenues declined from $3.8 billion in the third quarter of fiscal year 2017 to $3.7 billion in the third quarter of fiscal 2018. However, the health system’s expenses before restructuring also declined about 1.7 percent year over year to $3.7 billion in the third quarter of the current fiscal year.

After factoring in restructuring, impairment and other one-time costs, the system ended the third quarter of fiscal year 2018 with an operating loss of $35.3 million, compared to an operating loss of $17.2 million in the same period a year earlier. CHI said its operating EBIDA improved by nearly $80 million during the third quarter of fiscal year 2018 after adjusting for transactional gains and other items.

CHI launched a turnaround plan about three years ago, and the improvements the system has achieved under that plan are clear when looking at financial results for the first nine months of the current fiscal year. For the nine months ended March 31, CHI reported an operating loss of $114.7 million, which was a significant improvement from the nearly $344 million loss the system recorded in the same period of the year prior.

“We continue to see strong momentum that has played out in the current fiscal year,” said Dean Swindle, president of enterprise business lines and CFO of CHI, in an earnings release. “We have established a strong foundation through a performance-improvement plan stretching back nearly three years, and we expect that these positive results will continue throughout the rest of this fiscal year and well beyond as we become a truly high-performing health system.”

The three major rating agencies — Moody’s Investors Service, Fitch Ratings and S&P Global Ratings — have all recognized CHI’s progress in recent months with positive adjustment in their outlooks for the health system.

 

 

Health Insurers Had Their Best Quarter in Years, Despite the Flu

https://www.bloomberg.com/news/articles/2018-05-03/health-insurers-had-their-best-quarter-in-years-despite-the-flu

Here’s a look at how the margins of the largest in the quarter, based on data compiled by Bloomberg:

U.S. health insurers just posted their best financial results in years, shrugging off worries that the worst flu season in recent history would hurt profits.

Aetna Inc., for instance, posted its widest profit margin since 2004. Centene Corp. had its most profitable quarter since 2008. And Cigna Corp., which reported on Thursday, had its biggest margin in about seven years.

Analysts at Morgan Stanley, in a research note, said insurers are in the midst of a “hot streak.”

One big reason for the windfall is the tax cuts passed by Congress last year, which in some cases more than halved what the insurers owe the government. Aetna said its effective tax rate fell to 16.8 percent from 39.6 percent, for example. Many insurers also spent less on medical care than analysts had expected, even taking into account increased spending on flu treatments.

 

 

Kaiser’s operating income climbs to $1.1B in Q1

https://www.beckershospitalreview.com/finance/kaiser-s-operating-income-climbs-to-1-1b-in-q1.html

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Oakland, Calif.-based Kaiser Permanente reported higher revenues and operating income for its nonprofit hospital and health plan units in the first quarter of 2018, according to recently released financial documents.

Kaiser saw revenues increase to $20.3 billion in the first quarter of this year. That’s up about 12 percent from revenues of $18.1 billion in the same period of 2017.

The boost was attributable in part to the system’s health plan unit. Since Dec. 31, Kaiser has added approximately 472,000 health plan members. As of March 31, Kaiser had about 12.2 million members.

Kaiser reported operating income of $1.1 billion in the first quarter of this year, up from $1.04 billion in the same period of 2017.

After factoring in nonoperating income, which declined year over year, Kaiser ended the first quarter of 2018 with net income of $1.4 billion. That’s compared to the same period of 2017, when the organization reported net income of $1.6 billion.