Northwell's revenue jumps, but margin slips

New York state's largest health system grew in 2015, but Northwell Health's investments have chipped away at its margins.

Last year, Northwell Health, formerly known as North Shore-LIJ Health System, earned $89.7 million in operating surplus with an operating margin of 1%—underscoring how difficult it is for an organization, even of Northwell's size, to thrive. 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.

Though the 21-hospital not-for-profit system has grown much larger than many of its regional peers, competitors have reported higher margins. NYU Langone Medical Center, for example, reported an 8.8% operating margin for fiscal 2015, which ended Aug. 31, 2015.

Northwell's margins are weighed down by having a greater number of patients who are Medicaid beneficiaries. The government program reimburses healthcare providers at a lower rate than commercial insurers. Northwell's commitment to the Feinstein Institute for Medical Research also diminished its surplus, 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 of 17.5%. The growth in expenses was fueled by higher patient volume, and by investments in capacity, infrastructure and strategies that will prepare Northwell for the shift toward a payment system that rewards quality of care rather than quantity of services provided.

Last year, Northwell lost $41.4 million on its insurance products, 25.6% more than the year prior. But the system is still counting on health insurance as a long-term moneymaker. —Jonathan LaMantia, Crain's New York Business

Lifespan, Rhode Island's largest health system, has partnered with four primary-care physician practices in the state.

The partnership, called Community Physician Partners, will allow the physician groups to contract with Lifespan-affiliated health insurers while still remaining independent medical practices.

The four Rhode Island-based physician groups are Anchor Medical Associates, Medical Associates of Rhode Island, University Internal Medicine and University Medicine. About 170 primary-care physicians are part of the partnership. Lifespan has four acute-care hospitals and employs 1,800 physicians.

The system, which already participates in bundled payments with Blue Cross and Blue Shield of Rhode Island, will share responsibility for patient costs and care. The partnership will also provide its primary-care physicians with access to Lifespan's specialty clinicians and its electronic health record system. —Maria Castellucci