Dignity Health is treating a larger number of patients on both the inpatient and outpatient side as healthcare reform has boosted utilization.
The volume growth translated into additional revenue and operating surplus in its fiscal third quarter, which ended March 31. Those earnings will be used to support its population health management initiatives, Michael Blaszyk, senior executive vice president, said on a call Tuesday with bondholders. About 15% of its revenue is now coming from contracts that focus on keeping patients healthier and holding down costs.
Under healthcare reform, the San Francisco-based system, which has 36 hospitals in Arizona, California and Nevada, all Medicaid expansion states, has reversed previous trends of declining patient volume. Inpatient admissions increased 2.9% year over year and outpatient visits were up 6.1%. In the third quarter of fiscal 2014, in contrast, inpatient volume had declined 2.8% while outpatient visits had increased only 1.5%.
“We attribute the growth to the Affordable Care Act, and particularly Medicaid expansion, as well as our branding strategy,” Mary Connick, the system's vice president of finance, said on the call.
The system's payer mix also is shifting. Dignity Health saw 11,000 fewer self-pay patients and picked up 15,000 additional Medicaid patients. “Undoubtedly some of those patients are now taking care of deferred health issues,” Connick said.
It also had 700 more admissions with commercial insurance, its most lucrative payer.
In addition to the volume increase, Dignity Health benefited from the return of California's provider fee program, which had been on hold in 2014 while waiting for the CMS to approve its extension. The program provides additional funds to hospitals that treat low-income patients.
Those combined factors contributed to a 20.5% increase in same-facility revenue in the quarter.
On the expense side, Dignity is focusing on how to lower supply costs by standardizing purchases both across the system and with other healthcare providers through its Shared Clarity joint venture.
It is refining its compensation models and redesigning its scheduling process to keep labor costs in check. And it is focusing on how many patients are moving through its emergency departments and operating rooms.
“I don't want to overlook that as we continue to have an emphasis on the cost side,” Connick said. “We continue to have a vigilance on productivity.”
However, the results have been incremental so far, she added. “At this point, it helps mitigate inflation and annual cost increases.”
Dignity Health reported an operating surplus of $39.9 million in the quarter (PDF) ended March 31 compared with an operating loss of $20.7 million in the prior-year period. Revenue increased to nearly $3 billion compared with the comparable period's $2.6 billion.