Catholic Health Initiatives' financial performance improved significantly in the second quarter of its fiscal year as it began to see the benefits from recent acquisitions and cost-cutting efforts.
CHI reported an operating surplus of $419.9 million on $4.4 billion in revenue (PDF) for the quarter ended Dec. 31, compared with an operating loss of $53.6 million on $3.5 billion in revenue in the prior-year period. Its operating margin jumped to 9.5% from negative 1.5% in the comparable quarter.
The Englewood, Colo.-based system has been expanding rapidly through acquisitions, but with that growth has come growing pains. CHI saw a negative operating margin for the past two fiscal years, and those losses continued through the first quarter of fiscal 2015, according to the Modern Healthcare database of health-system financial results.
The operating improvement occurred in all of its markets expect for Nebraska, which lost one of its key insurers, the state's Blue Cross and Blue Shield plan, as a result of a contract dispute.
CHI's Pacific Northwest hospitals in particular benefited from increased patient volume while its Kentucky hospitals reversed the prior year's operating loss as a result of a turnaround plan that focused on cutting labor and supply chain costs and increasing physician profitability.
The system also credited its revenue increase to a better payer mix, higher reimbursement rates and higher patient acuity.
The acquisitions of Sylvania Franciscan Health in Toledo, Ohio, and St. Alexius in Bismark, N.D., last fall similarly added revenue and scale in key markets.
Although total admissions were up 7.4% thanks to new hospitals, volume declined on a same-hospital basis. Acute admissions were down 1.5%, while inpatient surgeries declined 1.8% and outpatient surgeries, 6%. Outpatient emergency room visits, however, improved 6.3% year-over-year.
CHI incurred $5.6 million in expenses related to a restructuring that aims to cut costs across its 105 hospitals and corporate office. Those cuts have come from laying off employees, pruning travel budgets and shrinking consulting contracts, among other measures.
"We have projected that by the end of this fiscal year, which is June, that we would be at the ongoing EBIDA (earnings before interest, depreciation and amortization) run rate that we need to sustain ourselves," CHI CEO Kevin Lofton said in a recent interview with Modern Healthcare. "A number of measures we put in place have been taking hold."
The system has continued its acquisition spree in its fiscal third quarter, buying a larger stake in Conifer Health Solutions, the revenue-cycle management company owned by publicly-traded hospital chain Tenet Healthcare Corp. In January it increased its ownership in Conifer to 23.8% from 2%, and more hospitals are using Conifer's services.
CHI also pruned its portfolio in January, reaching an agreement that will allow Penn State Health to acquire St. Joseph Regional Health Network in Reading, Pa. The divestiture is expected to close in the spring, pending regulatory approval.