(Story updated with comment from UnityPoint at 5:45 p.m. ET.)
UnityPoint Health experienced weaker financial results in its most recent quarter as the West Des Moines, Iowa-based health system
struggled with lower admissions and the integration of an acquisition that took it into the insurance space.
Meriter Health Services in Madison, Wis., agreed to become a UnityPoint affiliate this past October
, giving UnityPoint its first presence in the Badger State. The not-for-profit Meriter includes a 301-bed hospital and for-profit Physicians Plus Insurance Corp. The organization officially joined UnityPoint in January.
Meriter's health insurance arm, from fiscal 2012 through the first six months of fiscal 2013, lost $46 million. For UnityPoint, this deal marked its entrance into insurance.
Analysts at Moody's Investors Service said in April that Meriter's acute-care operations and “struggling insurance line of business” posed a challenge
to UnityPoint in the short term. UnityPoint responded by budgeting for operating declines this year before expecting better performance in 2015.
In the first quarter of UnityPoint's fiscal 2014
, ended March 31, the system realized $4.4 million in operating surplus on about $891.2 million of revenue. That compares with $11 million in operating surplus on $675.5 million of revenue in the same period a year ago. UnityPoint's operating margin consequently stood at 0.5%, compared with 1.6%. Those results included $3.5 million in unforeseen costs related to the Meriter transaction.
“We knew going into the affiliation that PPIC had some financial challenges,” UnityPoint CFO Mark Johnson said. “PPIC management had developed a financial improvement plan prior to the affiliation with UnityPoint Health. That plan is being followed and having an impact. PPIC is ahead of both budget and last fiscal-year performance.”
UnityPoint also struggled with cost containment. Excluding the addition of Meriter, UnityPoint's same-hospital revenue rose 4.8%, while same-hospital expenses increased at a higher 5.3% rate.
This year, officials budgeted for $32.8 million in “attainable cost reductions,” but in the first quarter only $2.3 million had been realized. However, the system expects that unnamed strategies that have been implemented will ultimately result in $16.2 million in cost savings by year-end.
“Based on the timing of the various initiatives driving these reductions, management expects the pace of attainment to increase throughout the remainder of the year,” according to the filing.
Same-hospital discharges, excluding newborns, dropped 7.9% throughout UnityPoint, while same-hospital adjusted discharges, which account for outpatient activity, decreased 2.4%. Self-pay patient service revenue fell more than 46% in the first quarter, while Medicaid revenue increased 32%. The system attributed the shift to Medicaid expansion in Iowa and Illinois, two states in which it operates.Follow Bob Herman on Twitter: @MHbherman