Merger costs, impairment dent CHE Trinity's third quarter

Operating income at CHE Trinity Health dropped 28% in the first nine months of fiscal 2014 as the Livonia, Mich.-based Catholic system absorbed charges related to its merger and overvalued property.

CHE Trinity officially merged last May, combining Trinity Health and Catholic Health East into a system with 80-plus hospitals. In the nine months ended March 31, according to recently released unaudited financials, the organization tallied $24.9 million in costs related to the consolidation. Comparatively, merger expenses cost $9.4 million in the first nine months of fiscal 2013.

The system also recorded a $32.7 million impairment charge, as it wrote down the value of assets at East Norriton, Pa.-based Mercy Suburban Hospital, a 126-bed hospital within CHE Trinity’s Mercy Health System. In total, CHE Trinity’s operating surplus was $203.7 million, compared with the pro-forma figure of $283.6 million in the same period of 2013.

Excluding the outlier items, CHE Trinity still posted a 3.9% drop in its operating surplus. Expenses grew faster than revenue, but revenue in the first nine months increased 3.5%, totaling $10.2 billion. Executives primarily attributed the revenue growth to higher acuity admissions and better rates from commercial payers.

The system’s total surplus in the first three quarters, including investment income, was $874.9 million—a 4.3% decrease from $914.5 million. That gave CHE Trinity a total margin of 8.6% compared with a much slimmer 2% operating margin.

Overall discharges dropped 4.2% while total outpatient visits climbed 7.6%.

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