Catholic Health Initiatives is still feeling the pinch from its rapid growth strategy, which has added costs faster than CHI can cut them through a systemwide restructuring initiative.
The Englewood, Colo.-based system had started to show financial improvement in the first half of its fiscal 2015, which began July 1. But its latest third-quarter report, released Monday, highlights the challenges of turning around a massive—and still growing—organization.
During the current fiscal year, CHI has added Sylvania Franciscan Health, based in Toledo, Ohio, with operations also in Texas and Kentucky, as well as St. Alexius Medical Center in Bismarck, N.D. It also increased its stake in Conifer Health Solutions, a revenue-cycle management firm that is majority owned by Tenet Healthcare Corp., to 23.8% from 2%.
Recent acquisitions were the driving force behind the increase in its operating expenses, which grew faster than revenue in the third quarter.
CHI reported an operating loss of $66.7 million (PDF), not including restructuring charges, on nearly $3.9 billion in operating revenue for the quarter ended March 31. That compares with an operating loss of $32.6 million on $3.4 billion in revenue for the prior-year period. Its operating margin declined to negative 1.7% from negative 1%.
Nevertheless, there were bright spots in its earnings report, including growth in most of its markets. Its acquisitions in Texas have begun to generate earnings growth, and its Kentucky hospitals are benefiting from a combination of Medicaid expansion in that state and an initiative to tightly manage expenses, including aligning labor costs with patient volume.
Its operations in the Pacific Northwest region, Arkansas and Ohio also have benefited from healthcare reform, the system said in its earnings report.
Yet despite an improvement in its payer mix, CHI continued to see a decrease in same-hospital inpatient volume. Admissions declined 2.8%, and inpatient surgeries declined 2.9%. Outpatient visits increased 3.7%, but outpatient surgeries were down 4.2%.
CHI is continuing to focus on a restructuring plan that will reduce headcount in its corporate office and several regions as part of an effort to trim its expenses.
It also plans to sell the money-losing St. Joseph Health in Reading, Pa., to Penn State Health. St. Joseph reported a loss of $44.5 million in the third fiscal quarter compared with a surplus of $1.5 million in the year-ago period. The parties have signed a letter of intent but are still negotiating a definitive agreement, the earnings report said.
(This story has been updated with a clarification. A previous version included losses attributed to acquisitions based on pro forma results calculated from prior-year financial results.)