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Kevin Lofton
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CHI's buying streak boosts its revenue, margin


By Melanie Evans
Posted: June 27, 2014 - 2:30 pm ET
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Catholic Health Initiatives' acquisition streak proved effective for the diversifying health system during the first nine months of its fiscal year.

The Englewood, Colo.-based system has added hospitals and health plans in Texas, Washington and Arkansas to its already sizable operations in recent years, with more deals pending in Ohio and North Dakota. That growth—which executives say is critical to capitalize on contracts that link payment to measures of quality and health improvement—contributed to Catholic Health Initiatives' spike in revenue and a healthy increase in operating margin during the first nine months of the year compared with the same period a year ago.

The system's rapid growth has expanded its geographic reach, increased its size and diversified operations. It also underscores a wave of consolidation since the 2010 health reform law that is creating new national and regional giants.

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“We need to make sure that all of our local ministries have critical mass sufficient to make sure that they are a player in that local continuum and in that local environment,” Kevin Lofton said in an interview with Modern Healthcare Editor Merrill Goozner at the annual meeting of the Healthcare Financial Management Association.

Operating revenue during its fiscal year's first nine months, which ended March 31, increased 32.5%, or $2.5 billion, compared with the first nine months of 2013. Without acquisitions, CHI's operating revenue increased 1.2%, or $89.7 million.

Operating revenue for the nine months ended in March totaled $10.2 billion compared with $7.7 billion the prior year. Expenses increased 31.1% to $10.1 billion from $7.7 billion.

The system's operating margin during the nine months ended in March improved to 1.2%, before accounting for restructuring, impairments and other losses, compared with 0.5% for the same period the prior year. That was thanks in part to the system's August 2013 deal for Harrison Medical Center, a two-campus hospital in Bremerton, Wash., CHI officials said in financial statements.

After accounting for restructuring, impairments and other losses, the system's operating margin was 0.8% for the nine months ended in March compared with 0% the prior year.

Without recent deals, CHI would have posted an operating loss of $136.4 million and a negative margin of -1.8%, compared with $29.8 million and 0.4% the prior year.

Follow Melanie Evans on Twitter: @MHmevans


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