Banner Health is working to cut costs from its newly acquired University of Arizona Health Network as the academic medical center's losses weigh on the system's 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 last week 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. Savings will be generated from the corporate office, as well as joint purchases of supplies and services.
Although Banner anticipates that capital expenditures will be higher over the next five years—largely because of commitments to UAHN—Dahlen said the system expects cost savings and other strategic initiatives will begin to show a positive financial return within the next 12 to 18 months. —Beth Kutscher
