Bon Secours Health System saw a decline in its operating margin in the first quarter of its fiscal 2015 as the Marriottsville, Md.-based group increased its investments in technology and physician practices.
The 13-hospital system plans to spend $35 million in fiscal 2015 to fund its IT projects, such as expanding its ConnectCare electronic health-record system to ambulatory-care sites, upgrading security tools and building out a new business intelligence platform.
The project was within budget for the first fiscal quarter, which ended Nov. 30, but the cost has been significant, Bon Secours said in an earnings report.
In addition, the number of employed physicians at Bon Secours increased 9% compared to the same period the prior year.
Those investments contributed to a lower operating margin of 2.4% for the quarter compared with 2.7% in the year-ago period. The additional expenses offset a 2.3% increase in net revenue that came from a better payer mix, managed-care rate increases and higher outpatient volume.
In total, Bon Secours reported an operating surplus of $21 million (PDF) on revenue of $869 million in its fiscal first quarter compared with an operating surplus of $22.9 million on $856.4 million in revenue for the prior-year period.
Although discharges declined 1%, the system saw an 8.2% increase in physician office visits and a 2.6% increase in emergency room visits.
Nonoperating losses, however, further cut into the bottom line. Bon Secours finished the quarter with a net surplus of $7.4 million compared with $56 million in the first quarter of fiscal 2014.
Bon Secours has had a cost reduction plan in place since fiscal 2012. This year, it has set a $100 million savings target that will come through “clinical transformation, labor management and supply chain,” the system said.
The plan already has generated $204 million in added revenue or savings over the past three years.
In December, Fitch Ratings upgraded Bon Secours' credit rating to A from A- with a stable outlook. Standard & Poor's affirmed the system's rating at A- with a stable outlook, while Moody's Investors Service this month affirmed its rating at A3 with a positive outlook.
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