Allina bottom line dinged by interest-rate swaps

Shifting patient volumes and growth in expenses cut Minneapolis-based Allina Health's operating margin in half for the first six months of 2014.

The not-for-profit system reported an operating surplus of $27.6 million on $1.7 billion in revenue (PDF), or a 1.6% operating margin, for the period ended June 30, 2014. That was down from an operating margin of 3.2% for the same period last year when Allina Health earned an operating surplus of $53.3 million on $1.6 billion in revenue. That's because though revenue was up 4.3% for the first half of the year, it couldn't keep up with a 6.1% climb in expenses.

Management pointed to “acquisitions and investments in strategies to position the organization for healthcare reform and changing payment methods” as the drivers behind the growth in expenses, but said that an initiative to cut $100 million in expenses is underway.

Simultaneously, revenue was constrained, management explained, as patient volumes shifted from inpatient to outpatient settings. Inpatient admissions and inpatient surgeries dropped 3.4% and 5.9%, respectively, for the period, while outpatient hospital admissions and outpatient surgeries rose 4.3% and 1.6%, respectively. Reductions in government payments as a result of CMS’ “two-midnight” rule also negatively impacted the system’s revenue, Allina Health reported.

Meanwhile, returns overall from non-operating activities also fell for the period. Though returns on investments more than doubled, Allina Health reported a $21.9 million loss on interest rate swap agreements used to manage fluctuations in rates and the overall cost of the system’s debt.

Allina Health’s six-month overall surplus fell to $63.2 million, a 45.6% decline from $116.1 million in the year-ago period, according to its quarterly financial statement filed Wednesday.

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