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Banner Health sees rising expenses chip away at growing revenue


By Rachel Landen
Posted: August 21, 2014 - 1:45 pm ET
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Lower volumes have put pressure on Banner Health's top line, but the Phoenix-based not-for-profit health system still managed to grow its revenue by nearly 4% during the first half of fiscal 2014.

Banner reported total revenue of $2.7 billion for the six months ended June 30, 2014 (PDF), up from $2.6 billion for the year-ago period, even with the continued shift to observation cases, along with lower inpatient surgical and outpatient volumes.

As of 2013, Banner controlled 45.1% of the market share in the Phoenix metropolitan area, up from 42.3% in 2009, according to Fitch Ratings. And in June, Banner closed on its $93 million acquisition of Regional Care Services Corp., including Casa Grande Regional Medical Center, Regional Care Physician's Group, and Casa Grande Regional Medical Center Foundation, all located in Casa Grande, Ariz.

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But expense growth, particularly a 7.2% hikes in salaries and benefits and a 5.9% increase in supplies, chipped away at revenue gains from Banner's expanded footprint.

On the $2.7 billion in revenue, the system ended the two quarters with $186.0 million in operating surplus, translating to an operating margin of 7.0%. That's down slightly from an operating margin of 7.1% a year ago when Banner recorded $183.7 million in operating surplus.

But the biggest drop for the seven-state system came to its overall surplus, which sank 43.4%, as a $67.2 million unrealized loss on interest rate swaps somewhat undid last year's gain of $119.6 million on the same. Even so, Banner finished the first half of the year in the black, recording an overall surplus of $238.0 million, compared with a surplus of $420.4 million last year.

Banner is certainly not alone among hospital systems that have seen their margins weaken in the past year. A recent Modern Healthcare analysis found that operating margins at 179 health systems and stand-alone hospitals declined from 3.6% in 2012 to 3.1% in 2013.

Follow Rachel Landen on Twitter: @MHrlanden


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