Fairview Health Services in Minneapolis closed the books on 2014 with an operating margin nearly identical to the year before despite troubles at the health insurance plan it partly owns.
The not-for-profit academic health system's operating surplus was $147.3 million last year, according to financial documents filed with bondholders Tuesday. That came on $3.56 billion of total revenue, equaling a 4.1% operating margin. In 2013, Fairview posted a $134.6 million operating surplus on $3.32 billion of revenue, also a 4.1% margin.
Fairview is a 50% owner of PreferredOne, a health insurer that covers about 312,000 people. In 2014, PreferredOne lost $21 million, and most of the red ink came from its individual-market business.
PreferredOne was the most popular insurer on Minnesota's MNsure exchange in 2014. But it pulled out of the exchange for 2015 due to financial issues. PreferredOne's medical expenses greatly outpaced the premiums it was collecting as the plan attracted a sicker-than-expected enrollment pool. Fairview executives affirmed in the financial documents that lower income from PreferredOne was “driven by increased health claims activity, particularly within new products available on MNsure.”
Even though PreferredOne struggled financially, Fairview may look to increase its stake. North Memorial Health Care in Robbinsdale, Minn., and PreferredOne Physician Associates equally own the remaining 50% of PreferredOne. But Fairview signed share purchase option agreements with both organizations that allow Fairview to purchase additional shares of PreferredOne, according to the financial documents filed with bondholders. The options are effective from Jan. 1, 2015, through Dec. 31, 2018.
Fairview also has a large vacancy to fill in the corner office. Rulon Stacey resigned as CEO of Fairview in March after just 15 months on the job. David Murphy, Fairview's board chair and interim CEO, told Modern Healthcare in February that there were differences between Stacey and others about how to roll out a strategic plan, but he did not go into specifics.
“The creation of a strategic plan and the implementation of a strategic plan are very different,” Murphy said. Fairview is still looking for a new CEO.
Inpatient admissions at Fairview hospitals dropped 1.7% in 2014, but outpatient visits increased 3.3%. Outpatient surgeries were also up year over year. Fairview's emergency room visits soared 8% last year.
Charity care—free or reduced healthcare for low-income patients—declined more than 29% at Fairview. More patients qualified for Minnesota's Medicaid program under the ACA, and many previously uninsured patients obtained subsidized health coverage through Minnesota's exchange.
Fairview's total surplus, which includes investment income and gains from other financial instruments, was $166.7 million in 2014. That was down considerably from the $244.3 million surplus recorded in 2013. Wall Street investments have similarly battered other health systems that have reported 2014 financials.