The University of Maryland Medical System improved its financial performance in the past year despite the state's first-in-the-nation experiment with hospital global budget caps.
The system reported an operating surplus of $118.1 million on nearly $3.4 billion in revenue for the year ended June 30 compared with an operating surplus of $48.2 million on $3 billion in fiscal 2014. Its operating margin improved to 3.5% from 1.6%.
The system's improvement in top-line revenue was largely due to its December 2013 merger with Upper Chesapeake Health System, whose addition led to an overall 3.4% increase in admissions year over year. But inpatient volume was flat or declined at most of the University of Maryland's 11 hospitals, while outpatient visits rose 9.8%.
The improved financial performance was largely due to holding expenses in check. Revenue increased 11.5% (PDF) year over year while expenses rose 9.3%, mostly due to higher salary and supply costs from treating additional patients.
The new global budget payment model in Maryland, initiated in January 2014, is designed to control healthcare spending. It caps inpatient and outpatient revenue growth at 3.58% annually. The fixed payment is adjusted for patient volume changes, inflation and other factors, but aims to incentivize hospitals to reduce costs instead of attracting new admissions.
Even with the new payment model, the system ended fiscal 2015 in a stronger financial position than the previous fiscal year.
There was at least one down note in the report. Like many health systems, the University of Maryland took a hit to its bottom line from the volatility in the financial markets, which led to investment income losses. Its ended the year with $95.1 million in total surplus on nearly $3.4 billion in total revenue in 2015 compared to fiscal 2014's $225.9 million gain on $3 billion in total revenue.