UnityPoint's surplus falls as system integrates Meriter

(Story updated with comment from UnityPoint at 5:45 p.m. ET.)

UnityPoint Health experienced weaker financial results in its most recent quarter as the West Des Moines, Iowa-based health system struggled with lower admissions and the integration of an acquisition that took it into the insurance space.

Meriter Health Services in Madison, Wis., agreed to become a UnityPoint affiliate this past October, giving UnityPoint its first presence in the Badger State. The not-for-profit Meriter includes a 301-bed hospital and for-profit Physicians Plus Insurance Corp. The organization officially joined UnityPoint in January.

Meriter's health insurance arm, from fiscal 2012 through the first six months of fiscal 2013, lost $46 million. For UnityPoint, this deal marked its entrance into insurance.

Analysts at Moody's Investors Service said in April that Meriter's acute-care operations and “struggling insurance line of business” posed a challenge to UnityPoint in the short term. UnityPoint responded by budgeting for operating declines this year before expecting better performance in 2015.

In the first quarter of UnityPoint's fiscal 2014, ended March 31, the system realized $4.4 million in operating surplus on about $891.2 million of revenue. That compares with $11 million in operating surplus on $675.5 million of revenue in the same period a year ago. UnityPoint's operating margin consequently stood at 0.5%, compared with 1.6%. Those results included $3.5 million in unforeseen costs related to the Meriter transaction.

“We knew going into the affiliation that PPIC had some financial challenges,” UnityPoint CFO Mark Johnson said. “PPIC management had developed a financial improvement plan prior to the affiliation with UnityPoint Health. That plan is being followed and having an impact. PPIC is ahead of both budget and last fiscal-year performance.”

UnityPoint also struggled with cost containment. Excluding the addition of Meriter, UnityPoint's same-hospital revenue rose 4.8%, while same-hospital expenses increased at a higher 5.3% rate.

This year, officials budgeted for $32.8 million in “attainable cost reductions,” but in the first quarter only $2.3 million had been realized. However, the system expects that unnamed strategies that have been implemented will ultimately result in $16.2 million in cost savings by year-end.

“Based on the timing of the various initiatives driving these reductions, management expects the pace of attainment to increase throughout the remainder of the year,” according to the filing.

Same-hospital discharges, excluding newborns, dropped 7.9% throughout UnityPoint, while same-hospital adjusted discharges, which account for outpatient activity, decreased 2.4%. Self-pay patient service revenue fell more than 46% in the first quarter, while Medicaid revenue increased 32%. The system attributed the shift to Medicaid expansion in Iowa and Illinois, two states in which it operates.

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