Banner Health, the Phoenix-based system that has expanded rapidly through acquisitions, is seeing its expenses outpace the additional revenue.
Banner took over operations of the University of Arizona Health Network in February, adding two hospital campuses, a faculty practice and three health plans. The deal included about $1 billion in funding and capital commitments.
In the first half of the year, Banner incurred $9.8 million in operating expenses related to the transaction, according to its second-quarter earnings report.
This summer, Banner also acquired 44-bed Payson (Ariz.) Regional Medical Center. It paid $40 million to the Mogollon Health Alliance to purchase the medical center's land and buildings, and another $11.4 million to acquire the assets of the hospital, physician clinics and home health agency from Community Health Systems.
Banner also entered into a $300 million taxable revolving credit loan with Bank of America to finance short-term capital needs at UAHN and Payson.
The transactions extended Banner's footprint throughout Arizona. The system also saw an opportunity to spread the high costs of operating an academic medical center like UAHN over a larger base.
But in the short term, costs are rising. Banner reported an operating surplus of $107.6 million on $3.4 billion in revenue for the first half of the year. In the prior-year period, its operating surplus was $186 million on $2.7 billion in revenue. The consolidated results include its stakes in several joint ventures.
Its operating margin was 3.2%, compared with the prior year period's 7% margin.
However, Banner also reported large year over year patient volume increases, including an 8.3% increase in admissions, a 25% increase in emergency department visits and 13% growth in outpatient visits.
Banner on July 1 also purchased 2,000 shares of Excelera Specialty Pharmacy Network, giving it a 15% stake, and pledged to purchase another 2,000 shares on Dec. 3. One of the health plans it acquired through UAHN, University Family Care, also entered into a $20 million deal to buy a 20% stake in Cenpatico of Arizona.