Skip to main content
Sister Publication Links
  • ESG: THE NEW IMPERATIVE
Subscribe
  • My Account
  • Login
  • Subscribe
  • News
    • Current News
    • COVID-19
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Transformation
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Digital Health
  • Insights
    • ACA 10 Years After
    • Best Practices
    • Special Reports
    • Innovations
  • Data/Lists
    • Rankings/Lists
    • Interactive Databases
    • Data Points
  • Opinion
    • Bold Moves
    • Breaking Bias
    • Commentaries
    • Letters
    • Vital Signs Blog
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Custom Media Event: ESG Summit
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top 25 Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Transformation Summit
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Supply Chain Revenue Cycle
    • - Hospital at Home
    • - Workplace of the Future
    • - Virtual Health
    • - Future of Healthcare Staffing
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Video Series - The Check Up
    • Sponsored Video Series - One on One
  • MORE +
    • Advertise
    • Media Kit
    • Newsletters
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Providers
August 25, 2015 01:00 AM

Banner aims to cut costs from UAHN as earnings lag

Beth Kutscher
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Banner took over operations of the University of Arizona Medical Center in February.

    Banner Health is working to cut costs from newly acquired University of Arizona Health Network as the academic medical center's losses weigh on its finances.

    Phoenix-based Banner saw its operating margin fall to 3.2% in the first six months of the year from 7% during the same period last year.

    UAHN had a negative 1.8% operating margin in the period between Feb. 28, when Banner closed its takeover, and June 30, Banner Chief Financial Officer Dennis Dahlen detailed on a call Monday with bondholders.

    “We expected an operating loss out of the gate,” he said. “It's better than we expected and better than the run rate before the acquisition. We're on a path to improving it but it's still not at a sustainably profitable position.”

    Banner plans to cut $100 million from UAHN's $150 million in overhead by 2018. The first $50 million in cost reductions will come by the end of next year. The savings will come from the corporate office as well as joint purchases of supplies and services.

    Banner also plans to transition UAHN onto its own information technology platform, which is with Cerner Corp. UAHN currently uses one from Epic Systems Corp.

    In UAHN's Tucson market, Banner is exploring value-based contracts with local insurers. “That marketplace has largely been dormant on the migration of providers taking on risk,” Dahlen said. “Obviously that's in our DNA. And we're finding ready, willing and interested payers to engage with us on that front.”

    Banner also discovered that the average length of stay in Tucson is one day longer than at the system's other hospitals for patients with comparable acuities. And UAHN is operating at close to 90% capacity in Tuscon. “By reducing length of stay, we can build new capacity and create new volume,” Dahlen said.

    Banner also plans to expand ambulatory services in Tucson and work more closely with community physicians who can serve as a source of referrals. In the Phoenix market, Banner plans to create “destination” institutes that will serve patients with highly complex conditions.

    Although Banner anticipates that its capital expenditures will be higher over the next five years—largely due to commitments it made to UAHN—Dahlen noted that it expects its cost-saving and other strategic initiatives to begin to show a positive financial return within the next 12 to 18 months.

    Separately, Banner also faced higher operating expenses related to drug costs, particularly for oncology and specialty products. Higher pharmacy costs were a major factor driving a negative 17.5% operating margin in its full-risk Medicare Advantage business.

    Banner manages 44,000 Medicare Advantage lives through a joint venture with Blue Cross and Blue Shield of Arizona.

    “We have some strategies to counter that,” Dahlen said. “But it's a sticky problem.”

    Banner is doing better with its shared-savings contracts, and is in its fourth year participating in the CMS' Pioneer accountable-care organization program. Its operating margin there is 36.8%.

    “We're certainly not happy with the fact that we're not profitable in that full-risk business,” Dahlen said, “but we do have initiatives afoot on both the utilization side and the pharmacy side … to mitigate those losses.”

    Banner is planning to go to the bond market later this year to raise $400 million to $500 million in permanent financing that will replace a temporary $300 million taxable revolving credit loan that is covering short-term capital needs.

    In addition to UAHN, Banner recently acquired 44-bed Payson (Ariz.) Regional Medical Center from Community Health Systems.

    Banner last week 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.

    Letter
    to the
    Editor

    Send us a letter

    Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.

    Recommended for You
    U.S.-medical-tourism
    COVID-19 pandemic dents medical tourism revenue
    colorful-people_i_i.png
    The Joint Commission to add health equity standards to accreditations
    Sponsored Content
    Modern Healthcare A.M. Newsletter: Sign up to receive a comprehensive weekday morning newsletter designed for busy healthcare executives who need the latest and most important healthcare news and analysis.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Advertise with Us
    • Ad Choices Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • COVID-19
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Digital Health
    • Insights
      • ACA 10 Years After
      • Best Practices
      • Special Reports
      • Innovations
    • Data/Lists
      • Rankings/Lists
      • Interactive Databases
      • Data Points
    • Opinion
      • Bold Moves
      • Breaking Bias
      • Commentaries
      • Letters
      • Vital Signs Blog
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top 25 Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Transformation Summit
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Supply Chain Revenue Cycle
        • - Hospital at Home
        • - Workplace of the Future
        • - Virtual Health
        • - Future of Healthcare Staffing
      • Custom Media Event: ESG Summit
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Video Series - The Check Up
      • Sponsored Video Series - One on One
    • MORE +
      • Advertise
      • Media Kit
      • Newsletters
      • Jobs
      • People on the Move
      • Reprints & Licensing