Scripps Health's surplus rises in Q3

Investment gains combined with a tight rein on expenses raised the surplus of Scripps Health in the third quarter of its fiscal year, according to the San Diego-based system's most recent financial documents released Thursday.

However, similar to other California systems like Dignity Health, San Francisco, and Sutter Health, Sacramento, Scripps is contending with a loss of revenue from the state's provider-fee program.

California and several other states run a provider-fee program, which levies a tax on hospitals. States then use those pooled funds to receive federal matches for Medicaid dollars, which are then distributed back to hospitals based on how many indigent patients they treat. Last fall, California approved a new three-year hospital-fee program, running from Jan. 1, 2014, through Dec. 31, 2016, but the CMS is still reviewing the plan.

Scripps' revenue in the three-month period ended June 30 (PDF) dropped 6% to $596.7 million as a result of the unrecorded provider fees. But the health system's operating surplus soared 20.5% to $31.3 million for the same reason: In the third quarter of 2013, Scripps lost more than $9 million from the provider-fee program, since it paid more than it received back.

Scripps also kept expenses in line. Wages and money spent on physician services in the third quarter barely increased year over year, and supply costs were essentially flat. However, Scripps recognized a $4 million impairment loss last quarter tied to correcting an over-valuation of its computerized physician order entry system, which electronically records and manages physician orders for diagnostic tests and other services.

The four-hospital system's total surplus in the quarter more than doubled, from $29.7 million a year ago to $78.8 million this year, thanks to a large, positive swing in its investment portfolio.

For the first nine months of Scripps' fiscal 2014, revenue slipped 3.5% to $1.8 billion. The operating surplus decreased 19% to $109.8 million. Scripps' operating margin in the nine months this year therefore totaled 6%, down from 7.2% in the comparable period last year.

Despite the lower year-to-date financials, Scripps continues to hold high credit ratings. Moody's Investors Service affirmed the system's Aa3 rating in May. And in April, Standard & Poor's upgraded Scripps to an AA-rated organization due to its “consistently strong operating performance, robust cash flow and excellent unrestricted reserves,” according to an S&P analyst.

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