Ascension's surplus dropped nearly 40% in its most recent quarter as investment returns fell significantly from a year ago, even though returns on its portfolio are beginning to stabilize.
Surplus in the third quarter ended March 31 fell to $228.1 million on $5.1 billion in total operating revenue compared to a $371.5 million surplus on $5 billion in revenue a year ago.
For the first three quarters of its fiscal year, Ascension's surplus plunged 81.5%, almost entirely from declining earnings on investments. The St. Louis-based Catholic hospital system saw a surplus for the nine months of $1.4 billion on $15 billion in revenue in 2014 fall to just $254.3 million in surplus on $15.5 billion in revenue the first three quarters of its fiscal 2015.
The system said its investment performance within most markets, including global equities, has been negative. However, while third-quarter non-operating investment returns of $181 million was well below last year's $305.5 million, the quarterly performance was substantially better than the July through December period last year when Ascension reported a $324.4 million loss on its investment portfolio.
Ascension's operating results this year are growing at a modest pace. Net patient revenue over the first three quarters rose 4.7% over the similar period last year due in part to a 3.9% increase in outpatient visits and an increase in realized revenue from Medicaid and commercial payers. The system reported increased revenue per equivalent discharge due to expanded coverage under the Affordable Care Act.
The system's observation days grew 6.2% and emergency room visits rose 5.6% compared to the same nine-month period last year. Ascension said the increase in observation days is primarily due to the CMS' two-midnight rule, which limits admission criteria for Medicare and Medicaid patients.
It attributed the jump in ER visits to the ACA.
Total operating expenses over the nine months increased 3.4%, less than its 3.8% increase in revenue. Ascension attributed the modest expense growth to its ability to offset a 4.4% increase in salaries, wages and employee benefits by increased productivity.
Standard & Poor's currently rates Ascension at AA+, the highest rating level for the healthcare sector. S&P said downward rating pressure is unlikely, given Ascension's considerable credit strengths and geographic and revenue diversification.