New York state's largest health system got bigger in 2015, but Northwell Health's investments have chipped away at profit margins.
Last year, Northwell Health, formerly known as North Shore-LIJ Health System, earned $89.7 million in operating income with an operating margin of 1%—underscoring how difficult it is for an organization, even of Northwell's size, to make money. That margin is down from 1.2% in 2014. Net income was $29 million, down from $190.8 million in 2014, according to audited financial statements. Operating income at the system's largest hospitals boosted results. Northwell has hospitals stretching from Westchester to Riverhead, Long Island.
Though the 21-hospital nonprofit system has grown much larger than many of its regional peers, competitors have reported higher profit margins. NYU Langone Medical Center, for example, reported an 8.8% operating margin for fiscal 2015, which ended Aug. 31, 2015.
The Great Neck, Long Island-based system's profit margins are weighed down by having a greater number of patients who are Medicaid beneficiaries. The government program reimburses health care providers at a lower rate than commercial insurers. Northwell's commitment to the Feinstein Institute for Medical Research also diminished profit, resulting in a $39.4 million operating loss last year.
Higher patient volume and payment rates drove the system's operating revenue to $8.7 billion, up 17.3% from the prior year. Management also attributed higher revenue to the acquisition of Phelps Memorial and Northern Westchester hospitals, expansion of its ambulatory network, investments in joint ventures and higher enrollment at its insurance companies.
However, operating expenses increased at a faster clip, 17.5%. The growth in expenses was fueled by higher patient volume, and by investments in capacity, infrastructure, and strategies that will prepare it for the shift toward a payment system that rewards quality of care rather than the quantity of services provided.
Last year, Northwell lost $41.4 million on its insurance products, 25.6% more than the year earlier. But the system is counting on health insurance as a long-term money maker. Northwell wants to control all parts of a patient's care, improving quality and lowering health care costs.
So far, annual growth from insurance product membership reveals a promising future. For instance, Northwell's CareConnect health plan, which started issuing coverage in January 2014, insured 72,000 members as of Dec. 31, 2015, up from 13,000 on the same date in 2014.
Meanwhile, Northwell is on track to get even bigger. At the direction of the Cuomo administration, the system is exploring the feasibility of partnering with several struggling Brooklyn hospitals. Last year, Northwell entered a strategic alliance with Brooklyn's Maimonides Medical Center.
"Northwell Health is an $8.7 billion behemoth with razor-thin margins" originally appeared in Crain's New York Business.