The Cleveland Clinic once again delivered a strong financial performance in the second quarter as it continued to reap the benefits from cost-cutting initiatives while also seeing higher volume.
In an earnings report for the period ended June 30, the 11-hospital system reported that its operating margin increased to 7.4%, up from 4.8% in the second quarter of 2014.
While many health systems are grappling with rising compensation and supply costs, the Cleveland Clinic managed to hold expense growth to just 2.3% in the quarter. It credited some of that success to its Care Affordability initiative, which focuses on developing cost-management plans to deliver more efficient, higher quality care to patients.
The Cleveland Clinic has been implementing cost-reduction initiatives since 2010, and has realized about $200 million in annualized savings. The system reported, for instance, that its salary and benefit costs increased only 0.7% in the second quarter compared with the same period last year.
However, like many of its peers, it is still facing rapid increases in pharmaceutical costs, which grew 18.2% in the second quarter compared with the year-ago period. The Cleveland Clinic opened its own specialty pharmacy last September to treat chronic and complex conditions, and booked a $15 million increase in outpatient pharmacy revenue.
Its cost-cutting efforts weren't in a vacuum, though, as the system continued to see higher demand for its services.
Total inpatient admissions, including acute- and post-acute care, increased 2.5% in the quarter while surgical cases were up 1.2%. Emergency room visits increased 7.5% and outpatient volume was up 6.2%.
The higher volume drove a 5.2% increase in revenue.
Medicaid expansion in Ohio contributed to a 31.6% reduction in the system's total uncompensated care, which includes both uncollectable accounts as well as charity care. Self-pay patients accounted for 3.1% of revenue in the second quarter, down from 4.8% in the prior-year period.
However, the Cleveland Clinic said it will continue to monitor the growing number of high-deductible health plans, which are offsetting some of the benefit it's seeing from greater Medicaid coverage.
The system reported a second-quarter operating surplus of $127.8 million on $1.7 billion in revenue compared with an operating surplus of $201.8 million on $1.6 billion in revenue for the prior-year period.
The results include $10.8 million in revenue from the April sale of Explorys to IBM. Explorys, a data and analytics company that helps multi-hospital systems aggregate information, was spun off from the Cleveland Clinic in 2009.
The Cleveland Clinic is also moving forward on a full affiliation with Akron (Ohio) General Health System, after taking a minority stake last September. The deal requires review from the state and the Federal Trade Commission, the smaller provider said in a news release.
The Cleveland Clinic reported $2.6 million in equity earnings related to its Akron investment in the second quarter.