Tri-City takes baby steps toward financial stability but hurdles remain

As Tri-City Medical Center appoints its third CEO in as many years, its most recent earnings report shows a hospital taking steps toward a financial turnaround but still operating with razor-thin margins.

Tri-City parted ways with CEO Tim Moran last week and installed Steve Dietlin, its chief financial officer, in the role. The reasons for Moran's termination are unclear but come just weeks after a news release praised him for helping to improve the hospital's financial performance and quality rating.

Oceanside, Calif.-based Tri-City reversed its fiscal 2014 operating loss in the fiscal year ended June 30, 2015, according to a January earnings report. Some of that boost, or $8.9 million, came from a state program that provides supplemental payments for treating Medicaid patients. The hospital also received about $727,000 in payments for meeting milestones related to implementing electronic health records.

On the inpatient side, Tri-City's average daily census declined 1%, but patients tended to be sicker than the previous year. Outpatient visits also increased 4.2%.

Tri-City reported an operating surplus of $424,000 on $337.2 million in operating revenue in 2015 compared with an operating loss of $5.7 million on $319.7 million in operating revenue during the previous year.

The hospital attributed the increased revenue to higher acuity patients, greater outpatient volume and changes in its payer mix. But more complex patients also meant higher supply costs, particularly for drugs as well as orthopedic and spine surgeries.

Still, the hospital said in its earnings report that it managed to hold salary costs to 56% of revenue in 2015 compared with the prior-year's 57% through a “continued focus on increased productivity.”

Tri-City also benefited from recent deals. In particular, the hospital saw an 18.1% increase in patient visits at the infusion center that it acquired in 2013. The center had a net revenue impact, after expenses, of $3.8 million.

Similarly, Tri-City's 60% stake in a joint venture known as Ambulatory Surgery Center Operators added $555,000 in revenue after expenses.

The hospital continues to grow, and in January 2015 opened a primary care clinic from which four physicians provide services. It also spent $6.4 million on new equipment and building upgrades.

Tri-City in October forged a deal to affiliate with UC-San Diego Health, though it's unclear whether the recent leadership change could affect or delay those plans. Moran was a key architect of the partnership deal, which envisioned Tri-City as UCSD's northern San Diego hub. The two medical centers will be able to jointly recruit physicians, collaborate on new clinical programs and share information technology infrastructure. The alliance would also increase the number of health plans including Tri-City as a contracted provider.

In a news release following Dietlin's appointment, Tri-City reiterated that the UCSD deal remains one of its key strategies. Other areas of focus include a campus redevelopment plan that will address seismic requirements as well as add a new emergency department and parking structure. Its priorities also include increasing patient volume and market share, recruiting physicians and making continued progress on its financial turnaround.

As Tri-City looks toward the future, however, its earnings report shows that the hospital is still trying to settle the earlier whistle-blower suit that led to the dismissal of CEO Larry Anderson in 2013. The medical center in July increased the proposed settlement amount but as of January was still waiting for a response from the U.S. Justice Department and the Office of Inspector General.

Beth Kutscher

Beth Kutscher is based in Mountain View, Calif., and covers healthcare innovation and digital health. Before joining Modern Healthcare in 2012, she was a content editor and healthcare reporter for the New York-based Mergermarket Group. She previously was news and online editor for Pharmaceutical Executive and deputy news editor and healthcare reporter for PRWeek. She has a bachelor's degree in English from Cornell University.

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