Baylor Scott & White Health reported stronger operating results for the third quarter of its fiscal 2014, also the third quarter overall for the newly merged Dallas system, as an increase in emergency department visits and surgeries helped boost revenue.
The not-for-profit, which was created Oct. 1, 2013, when Baylor Health Care System and Scott & White Healthcare united, reported net patient revenue of $1.5 billion (PDF) for the quarter ended June 30. That was up 8% over the previous quarter when net patient revenue hit $1.4 billion. Management credited the boost to an increase in emergency room visits and surgical cases, up 6.1% and 10.7%, respectively.
The improvement came despite softer volumes at several of the Baylor Health Care System hospitals, management said, as higher patient volumes among its Texas Health Ventures Group facilities offset the decline in utilization at other locations. Texas Health Ventures operates seven short-stay surgery hospitals and 26 ambulatory surgery centers in north Texas.
Overall, operating revenue rose 7.8%, or $128.7 million, between the second and third quarters, while expenses climbed just 1.8%. The $28.3 million increase in operating expenses came primarily from salaries, wages and employee benefits that rose 1.3% and supplies that bumped up 3.1%. Meanwhile, falling interest expense helped mitigate even the relatively low increase in salary and supply costs.
As a result, the system's operating margin more than doubled from 3.1% to 7% between the quarters ended March 31 and June 30. And that was with $27.4 million in merger-related costs dragging down the bottom line. Baylor Scott & White Health did not recognize any such costs during the previous two quarters of consolidation.
When the two systems merged in October of last year, the newly formed operation included 43 hospitals and 500 patient-care sites, along with 6,000 affiliated physicians and a health plan, according to Moody's Investors Service. But despite the large reach and market share in Texas, Moody's warned three months after the merger that the system's fiscal 2014 would likely be challenged by risks related to executing the integration, including funding capital projects, implementing technologies at Scott & White, and improving Scott & White's financial performance and balance sheet position.
Even with these obstacles, the system has seen operating improvements quarter over quarter, possibly also linked to improved synergies, that have trickled down to the net surplus.
Baylor Scott & White Health's overall surplus for the third quarter hit $185.9 million, up from $66.9 million during the previous quarter. Gains on investments helped lift the surplus further, even as interest rate swaps continued to result in non-operating losses, albeit smaller ones for the third quarter.
Follow Rachel Landen on Twitter: @MHrlanden
