Inova's investment in genomics squeezes margin

Inova Health System, a Virginia health system that in recent years expanded into health insurance, saw its operating margin decline slightly last year as it invested in another new venture.

Inova, based in Falls Church, Va., owns five hospitals and has diversified its operations since 2012 to include a joint venture with insurer Aetna. Last year, the company launched a new genomics business, the Inova Center for Personalized Health, and hiring for the new endeavor added to the system's fast-growing operating expenses.

The added employment for the Center for Personalized Health and hiring to meet patient demand contributed to the system's 13.6% increase in salaries and benefits in 2015 compared with the prior year, the system said to bond investors in a comment that accompanied Inova's 2015 financial results. Overall expenses increased 10.9% to $2.75 billion for the year.

Growth in operating costs outpaced the increase in revenue, which grew 10.1% to $2.97 billion for the year. After accounting for bad debt, or unpaid medical bills, the system's revenue from patients was up 11%. Inova reported a sharp drop in bad debt of 23%, which officials attributed to new accounting for low-income patients who qualify for financial aid.

Virginia did not expand eligibility for Medicaid, one of the primary avenues under the Affordable Care Act to increase insurance coverage. Hospitals in states that expanded Medicaid have generally reported a drop in the number of uninsured and bad debt. Inova's market also includes Maryland and the District of Columiba, which did expand Medicaid.

Inova ended the year with an operating margin of 7.5%, down from 8.1% the prior year. The system's operating surplus for the year totaled $221.4 million, compared with $217.7 million in 2014.

Investment losses, which eroded net surplus not-for-profit health systems at the end of last year, left Inova with a net gain of $197.2 million, down 40% from 2014.

Melanie Evans

Melanie Evans writes about healthcare finance, hospital management and governance issues. She has been part of the Modern Healthcare staff since 2004. Earlier in her career she covered healthcare and not-for-profits as a reporter at the Duluth (Minn.) News Tribune. She received a bachelor's degree in international relations from Boston University and a bachelor's in journalism from the University of Minnesota.

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