Memorial Sloan-Kettering Cancer Center, New York City's specialized cancer hospital, is grappling with higher costs associated with a greater number of employees, new clinical facilities and hefty drug price increases.
The growth in its expenses during the first half of the year outpaced the revenue increase from its expansion initiatives. Sloan-Kettering opened two new clinical sites last year: a 114,000-square-foot facility in West Harrison, N.Y., and a 90,000-square-foot facility on the Upper East Side of Manhattan.
The two new locations contributed to a 6.1% increase in outpatient visits in the first six months of 2015, with most of the growth coming from its regional network. Outpatient visits increased 19.4% at its regional sites compared with 3% in Manhattan.
Admissions increased 3.2% while surgeries were up 4.8%.
Sloan-Kettering has been rapidly expanding in New York City and the suburbs, and in January issued $550 million in bonds to fund new projects. It also has been raising money through a $3.5 billion fundraising campaign that, as of last year, had reached 98% of its target.
Yet the higher volume also led to higher costs in the first half of the year that depressed its operating margin. Sloan-Kettering reported an operating surplus of $109.4 million on $1.8 billion in revenue for the first six months of 2015, compared with an operating surplus of $139.7 million on $1.6 billion in revenue during the same period last year.
Its operating margin fell to 6.2% in the period from 8.5% a year ago.
The new sites and greater number of patients meant higher compensation costs as Sloan-Kettering increased its employee headcount.
Like many hospitals, Sloan-Kettering also was hit with rising drug costs from newly approved products and a sharp price increase for a supportive drug given to the majority of chemotherapy patients. Pharmaceutical costs increased 21.3% year over year, and were a major driver of higher supply expenses.
The combination of higher compensation and supply costs led to an 11.4% increase in operating expenses in the first half of the year, overshadowing its 8.6% increase in operating revenue.