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Norton Healthcare stabilizes as EHR expenses fall


By Bob Herman
Posted: August 13, 2014 - 1:15 pm ET
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A multimillion-dollar installation of an electronic health-record system dragged down Norton Healthcare's financials in 2012 and 2013, but the Louisville, Ky.-based health system rebounded in the first half of this year.

Norton—like many others racing to adopt the latest health information technology—began implementing an Epic Systems Corp. EHR in 2012. Norton's five hospitals and several physician practices fully converted to the Epic system by 2013. In total, the EHR cost nearly $80 million to install, according to Norton's audited 2013 financial documents (PDF).

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The system's EHR-related costs now have started to come down considerably. Norton recorded zero EHR implementation costs in the quarter ended June 30 (PDF), compared with $5.2 million of installation expenses in the same period last year. However, some of that money was shifted toward salaries and software maintenance contracts as the system fully operates the EHR. Total EHR costs in the first half of 2014 were $7.6 million, about a third of last year's $21.5 million in the same period, according to Norton.

In the first six months 2014, the system's patient service margin, defined as patient revenue minus direct expenses, essentially its operating surplus, totaled $14.1 million, compared with a $13.4 million loss in the first half of 2013. Including investment income and other non-operating revenue, Norton's total surplus was $43.6 million, up from last year's $1.8 million net loss. Net revenue in the first six months of 2014 climbed 4.7% to $867.3 million.

Increased patient revenue and decreased supply and malpractice insurance expenses, in addition to lower EHR-related costs, “were the primary causes for this improvement,” wrote Norton Chief Financial Officer Michael Gough in the financial disclosure. Inpatient and outpatient volumes grew or improved most significantly at Norton Hospital, the system's 370-bed flagship, as well as at Norton Audubon Hospital and Norton Brownsboro Hospital, all in Louisville.

Norton's physician group also employed an undisclosed amount of specialists and primary-care physicians, which boosted office visits by 8% in the first six months.

Norton operates in a Medicaid expansion state. Democratic Kentucky Gov. Steve Beshear announced the state's intent to extend the health insurance program to 308,000 low-income Kentucky residents in the spring of 2013. However, Medicaid expansion appeared to make no discernible difference for the organization thus far. Medicaid represented 18% of Norton's net patient-service revenue in the first half of 2014, the same ratio as the first half of last year. Bad debt also increased by 7% year-over-year.

Follow Bob Herman on Twitter: @MHbherman


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