CHE Trinity seeing cost savings from 2013 merger

CHE Trinity marked its first full fiscal year as a merged organization with an earnings report that its chief financial officer said reflects its success in finding synergies and moving toward a value-based payment model.

“We had a tremendously successful first year as a merged organization,” said Benjamin Carter, the system's CFO. “Our focus is really on transitioning to population health, making the investment in ACOs.”

Livonia, Mich.-based Trinity Health completed its merger with Catholic Health East in May 2013, bringing together more than 70 hospitals in 21 states. Five months later, the system found a new CEO in Dr. Richard Gilfillan, who was most recently director of the CMS Innovation Center. Gilfillan's arrival suggested that the system had an ambitious plan to move toward a payment-for-value healthcare delivery approach.

Only a small percentage of revenue is currently coming from value-based contracts, Carter acknowledged. But the system is laying the groundwork.

“As we're renegotiating contracts with payers across the nation, we're factoring in value-based contracts as far as those discussions,” he said.

In total, the merged organization reported a $382 million operating surplus (PDF) on $13.6 billion in revenue, for an operating margin of 2.8%. When factoring in non-operating gains, the system's total surplus was $937 million.

CHE Trinity was able to realize $50 million in savings, mostly on the administrative side, Carter said. The system, which set a goal to achieve $300 million in savings over three years, has been leveraging its size to get better deals on purchases and reduce costs across the organization, from risk management to information technology.

The system also has reduced its full-time equivalent employees by 1% since the beginning of the year. It incurred $46 million in restructuring costs (PDF), mostly related to severance and benefits, according to its earnings report.

However, it said it expects lower labor costs going into fiscal 2015.

CHE Trinity also froze the legacy Trinity Health pension plan to move employees into a defined contribution plan, Carter said. Vested employees had an option to receive a lump-sum payment, which resulted in additional costs for the system but will lead to long-term savings.

The earnings report did not break out patient volume, but Carter said emergency room visits and outpatient services remained strong while discharges and surgeries decreased slightly.

Looking ahead, the system expects another $1 billion in capital expenditures for fiscal 2015 and is also keeping an eye on merger and acquisition opportunities, Carter said, without elaborating. The newly merged system also has been selling underperforming assets. While Carter did not rule out more divestitures, he declined to comment on particular markets.

Follow Beth Kutscher on Twitter: @MHbkutscher