Chicago's Swedish Covenant Hospital swung to a $6.9 million operating profit in fiscal 2012, compared to a loss of $1 million last year, an encouraging sign for the hospital as it tries to expand service lines to attract more patients.
The income surge is partly because total revenue improved 7 percent, to $268.6 million, in the fiscal year that ended 2012, compared with $251.2 million in 2011, according to the hospital's most recent unaudited financial statements. The 313-bed hospital, like other Chicago safety-net hospitals, faces revenue pressures due to its reliance on the government health insurance programs.
Steadily increasing admissions, strong focus on expanding outpatient services and attention to the revenue cycle contributed to the hospital's fiscal 2012 performance, according to a Dec. 3 report by Fitch Ratings, which reaffirmed its BBB+ rating on nearly $155 million in bonds. The rating is two notches above non-investment-grade bond status.
Favorable credit scores allow hospitals to borrow money at lower interest rates.
In an effort to attract more patients with private insurance, Swedish in recent years has invested in its facilities and expanded its services.
In July, Swedish opened a downtown office with a CyberKnife, a sophisticated piece of equipment that zaps cancer cells with focused radiation.
The hospital's strategy has been to establish its major service lines and progressively add to the breadth and depth of those offerings, CEO Mark Newton said. While some hospitals are cutting lines of care, Swedish sees maintaining broad offerings as a key to distinguishing the 126-year-old institution in the crowded market for hospital care.
“Our strategic belief is that we have to find a way for people to access our services,” Mr. Newton said. “Limiting your product offering is the opposite of what the consumer is looking for.”
In addition to the rating, Fitch gave Swedish a “stable” outlook, based on the expectation that Swedish “will continue to produce solid cash flow, which should offset an elevated debt burden and preserve balance sheet strength.”
Swedish appears to have kept salary and wage growth in check — those costs rose only 3 percent, to $115.3 million, in fiscal 2012. The hospital reduced employee benefits expenses by 11 percent, to $18.9 million. Labor-related expenses fell to just under half of revenue in 2012, down from about 53 percent in 2011.
About 23 percent of Swedish's patients are on Medicaid, the state-federal payer for the poor, while 41 percent are on Medicare, which is operated by the U.S. Health & Human Services Department.
Medicaid has perennially reimbursed providers at rates well below other sources, and for some services it pays below cost. Medicare faces across-the-board cuts as part of the federal “fiscal cliff” currently looming in Washington.