Healthcare Business News

Expansion erodes operating margin at Sentara while Aurora curbs expenses

By Melanie Evans
Posted: May 9, 2014 - 3:15 pm ET

Expansion fueled expense growth at Sentara Healthcare in fiscal 2013, eroding its operating margin. At Aurora Health Care, cost cutting helped hold down expenses and increase the operating margin. The two systems released financials this week.

They are among the 20 largest not-for-profit U.S. health systems, by revenue.

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Sentara Healthcare ended its fiscal year in December with a lower operating margin than the prior year, as the cost of physician hiring and the acquisition of Halifax Regional Health System pushed expenses up faster than revenue, the system's financial statements show.

The Norfolk, Va.-based health system, which owns 11 hospitals and a health plan, closed its books with operating income of $221.8 million on revenue of $4.3 billion for an operating margin of 5.2%. That's compared with the prior year's margin of 6.5%.

Operating revenue increased 5.7% last year, including revenues from the 192-bed hospital, three long-term care facilities and other operations Sentara acquired with its July 2013 deal for Halifax Regional. Increased demand for cardiac surgery and endoscopies in 2013, which increased 1.7% and 6.2%, also contributed to revenue growth.

Operating expenses, however, increased 7.2%, with the growth in physician practices and increased labor costs from Halifax.

Sentara's health plan revenue from premiums and capitation increased by 6.3% to $1.4 billion in 2013; medical claims increased 4.1% to $882.6 million.

Aurora Health Care, the Milwaukee, Wis.-based health system with 14 hospitals, curbed its expenses growth in part with efforts to hold down operating costs, according to financial statements filed throughout fiscal 2013, which also ended in December.

Revenue increased 3% to $4.2 billion in 2013, the year-end financials show. Expenses increased $2.6% to $4.1 billion, contributing to an $18.8 million boost to operating income to $156.8 million, or an increase of 13.6%. Among other expense reduction effort, the Wisconsin health system's decision to freeze its defined benefit pension plan at the end of 2012 reduced its fringe benefit expense by 7%.

Aurora's operating margin for 2013 increased to 3.7% from 3.3% the prior year.

Follow Melanie Evans on Twitter: @MHmevans

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