Technology upgrades were also a key component of LifePoint's 2011 capital expenditures. Carpenter says that of the $220 million that LifePoint spent on capital projects, about $80 million went toward information technology, the majority of which was spent on achieving meaningful-use compliance.
The remainder helped fund investments in its current facilities, additions to its service lines and the system's new 100-bed Clark Regional Medical Center, Winchester, Ky., which opened its doors this year.
Publicly traded LifePoint is one of the systems that posted strong gains in its financial results last year; its net revenue increased 8.7% to $3.54 billion, while net operating income grew 7.2% to $536.2 million.
“We are focused on improving quality outcomes for our patients while at the same time becoming more efficient operators of our hospitals,” Carpenter says. “Those things are not mutually exclusive.”
The 13 for-profit systems included in the ranking outperformed their not-for-profit peers, but the chains in the survey included some of the largest players in the sector.
Together they saw a 10.4% increase in their net patient revenue, for an average of $6.3 billion in 2011. Net operating income increased 13.5%, with systems averaging $413.7 million.
Operating margins also improved to 6.7% compared with 6.4% in 2010.
Dean Diaz, a vice president and senior credit officer at Moody's Investors Service who follows for-profit healthcare systems, notes that on the key metric of “same-store” revenue growth, which compares facilities' performance against the prior year, investor-owned chains saw a revenue increase of about 4%. “It's a little bit lower (than previous years), but not to the point where it's of concern,” he says.
On the expense side, wages and salaries have increased, and systems have responded with cost-cutting measures in other areas, particularly on higher-cost technologies, he says.
At Capella, Warren points to the system's marketing and travel budgets as two examples of areas where it has been able to reduce costs. “We have to be extremely cautious in how we spend our dollars,” she says.
Yet one place where the investor-owned system has not cut back is in physician recruitment, bringing onboard 47 clinicians last year. Capella also boasts a 90% physician retention rate, which Warren says helps add stability to the company.
“Hospitals in general have been employing more physicians,” LifePoint's Carpenter says. “That has put pressure on the salary, wages and benefits line. We view the employment of those physicians as an investment in our hospitals.”
For-profit health systems have also been investing their cash in technology upgrades such as EHRs, and have seen significant acquisition activity, according to Diaz.
“The for-profits definitely hold a lot less cash than the not-for-profits,” he says. “I think scale and efficiency become an even more important factor in maintaining operating margins.”
Diaz cited not-for-profit health systems, physician groups and clinic sites as
Carpenter too noted that LifePoint has been focused on buying community hospitals in regions where it is already located. “The acquisition environment is very active,” he says. “There are a lot of opportunities for a company like LifePoint to acquire hospitals.”
He also highlighted the company's joint venture with Duke University Health System, Durham, N.C., which has already purchased three hospitals since it was formed last year. “We think it's representative of how care will be delivered in the future,” he says.
TAKEAWAY: While hospital systems overall saw smaller gains in net income for 2011, they continue to invest in capital projects, especially IT and outpatient services.