The new managers of Verity Health System have begun the hard task of restoring the six-hospital group back to profitability. But while they're getting a handle on costs, they still need to reverse declines in patient volume.
Verity, formerly known as Daughters of Charity Health System, continued to lose money in the quarter ended March 31, the third quarter of its fiscal year. Blue Mountain Capital Management, a New York-based private-equity firm, has been overseeing Verity's operations since Dec. 14 through a newly created entity called Integrity Healthcare.
The system's biggest challenge remains falling patient volume, particularly on the outpatient side. In the first nine months of its fiscal year, patient discharges decreased 1%, or 3.8% when adjusted for outpatient activity.
The number of deliveries decreased 17.4% while emergency department visits were down 4.4%. Inpatient surgeries fell 6.9% year over year while outpatient surgeries dropped 13.5%.
The fall-off in volume, combined with lower revenue from California's provider fee program, led to an 11.4% decline in net patient service revenue.
In response, the Redwood City, Calif.-based system cut its expenses 4.4% compared with the first nine months of fiscal 2015. Salary and benefit costs were 6% lower than in the year-ago period while supplies costs were flat. However, the cuts weren't enough to get ahead of shrinking revenue, and Verity recorded a negative operating margin of 10.3% for the nine-month period compared with a negative operating margin of 4.7% during the same period in the previous fiscal year.
Verity's nine-month operating loss was nearly $103 million on $993.9 million in total revenue compared with the year-ago period's $51.6 million operating loss on $1.1 billion in operating revenue.
Yet there were some bright signs. Verity had 42.6 days of cash on hand on March 31 compared with just 19.7 days on March 31, 2015. And Standard & Poor's in March upgraded the outlook on Verity's debt to stable from negative, maintaining its CCC credit rating.
Verity also spent $2.4 million on capital expenditures across its six hospitals in the first three months of 2016.
The system's new management team plans to focus on a three-pronged strategy for improving operations. It is targeting streamlined, faster bill collection efforts, reducing supply chain costs and staff productivity initiatives.