Regional News/Northeast: North Shore-LIJ operating margin slips amid insurance, outpatient moves

North Shore-LIJ Health System, Great Neck, N.Y., saw its operating margin decline slightly last year as the system launched an insurance company and expanded ambulatory-care services.

The system cut spending on supplies, according to financial filings, but that did not fully offset spending to expand its growing network of physicians and ambulatory care, or hiring for its insurance arm. The system recruited 50 new employees with insurance experience to help market its health plans.

“You have to spend a lot of resources hiring the right people with insurance backgrounds,” Michael Dowling, North Shore-LIJ's president and CEO, said last year in an interview with Modern Healthcare. “You have to hire people with actuarial backgrounds, with risk-management backgrounds, with utilization-management backgrounds. We've spent a lot of time in the past year hiring a lot of talented people from insurance companies who are now here with us to provide the core of our insurance business.”

North Shore-LIJ's expansion into insurance, also launching within other large systems such as Catholic Health Initiatives, Englewood, Colo., and Partners HealthCare, Boston, is a bid to prepare the system for new payment models that shift financial risk for care delivery to hospitals and doctors, he said.

Operating revenue across the system's 15 hospitals, three nursing homes and other operations increased 6% to

$7 billion during the year ended Dec. 31, 2013, from $6.6 billion the prior year. Expenses grew a marginally higher 6.3%, to $6.9 billion last year, compared with $6.5 billion in the previous year. North Shore-LIJ's expanding ambulatory operations contributed to 6% growth in patient revenue last year, despite a $23.9 million drop in Medicare revenue under sequestration.

North Shore-LIJ's operating margin declined to 1.2% from 1.5% the prior year, because expenses outpaced revenue. The system ended 2013 with an operating surplus of $84 million, compared with $97.9 million the year before.

Follow Melanie Evans on Twitter: @MHmevans