Fairview Health Services is casting blame for its second-quarter plunge in operating income on its need to pay for pricey new hepatitis C drugs, the Minneapolis-based system said in a financial filing released Monday.
The seven-hospital system's surplus was also reduced by the continuing shift in demand from inpatient to outpatient settings as it continues to shrink its bedcount, the filing said. Last year's second quarter also benefited from pent-up demand due to severe winter weather during the first quarter of 2014.
Fairview, which is exploring a merger with the University of Minnesota Physicians, registered a $36.6 million operating surplus in the second quarter on $956.7 million in revenue, down 28.8% compared with a $51.4 million surplus on $895.7 million in revenue a year ago. The operating margin of 3.8% in the second quarter compared to 5.7% a year ago.
For the first six months of the year, Fairview's operating surplus was 3.4%, down from 4% in the first six months of 2014. Total operating income year over year was $64.2 million compared to $68.9 million in 2014. Total patient days dropped slightly but occupancy rates rose to 66.8% from 65.7% as the system continues to shrink its inpatient capacity, now at 1,503 beds.
Like many health systems, Fairview's investment returns took a drubbing, losing $1.7 million in the most recent quarter. A year ago, the system registered a $33 million gain on its investments. But the system offset much of those losses in the swaps market, registering a $21.9 million gain in the most recent quarter compared to a $6.9 million loss a year ago.
In announcing its merger plan, Fairview officials said that while its name would disappear, the move would provide the system with additional resources. "We believe there will be more money to invest in our healthcare system," interim CEO Dave Murphy told the Minneapolis Star Tribune, "because we will be delivering better care. And when you deliver better care, patients come to you."
Fairview's board and the University of Minnesota board of regents said in a joint news release earlier this month that they hoped to bring the final terms of a merger to the boards in the spring of 2016.