Banner Health expected the integration of the University of Arizona Health Network would be challenging. But its third-quarter financial performance also has been stressed by rising expenses and losses in its Medicare Advantage business.
The Phoenix-based system is still operating in the red following its February takeover of UAHN, which has become a turnaround situation. Its operating margin declined to -0.2% in the quarter ended Sept. 30, down from the prior-year period's 3.2%. But even on a same-hospital basis, its operating margin for the quarter would have been below last year, or just 1.3%.
“We lagging 2014 performance and largely that was planned for … but still behind where we expected to be,” Dennis Dahlen, Banner's chief financial officer, said on a call with bondholders.
Outside of UAHN, much of the difference in results could be attributed to its risk-based business, and particularly losses on its three Medicare Advantage contracts, where medical claims were higher than premium revenue.
Banner plans to terminate its Medicare Advantage contract with Health Net in 2016 after failing to reach acceptable terms that would stem the losses.
However, the system did see success in the Medicare Pioneer accountable care organization program, where it earned $18.7 million in shared savings in program year three, or about double what it earned the previous program year.
Still, its efforts to reduce costs by holding down utilization was a double-edged sword for the system. Patient volume was below 2014, though the patients who were admitted tended to be sicker, Dahlen said.
Like many systems, Banner also grappled with rising costs for oncology and hepatitis C drugs, which increased its overall supply expenses.
In total, Banner reported an operating loss (PDF) of $3.2 million on $1.8 billion in revenue for the third quarter compared with an operating surplus of $42.8 million on $1.3 billion in revenue in the year-ago period.
