Banner Health is starting to stabilize its financial picture after an unexpectedly tough year.
But while its finances looked stronger in the first quarter of 2016, most of the growth came from its legacy operations while new acquisitions and new payment models continued to create challenges.
The Phoenix-based system reported an operating margin of 5.5% for the quarter ended March 31, on par with 5.4% for the same period last year. The stable performance comes after a year of struggling with losses at the University of Arizona Health Network, which Banner acquired in February 2015 in a $1 billion deal.
Those challenges still remain. But outpatient volume is increasing at its legacy hospitals and its operating surplus within that same-store business grew 40.4%.
Although inpatient admissions declined 3.6% year over year, emergency room visits were up 4.3% and surgical procedures increased 2.7%, mostly on the outpatient side. Outpatient clinic visits were up 12.5% on a same-store basis or as high as 21% when factoring in new additions to its medical group.
Overall, Banner reported an operating surplus of $106.5 million on $1.9 billion in total revenue for the first quarter. That compares to an operating surplus of $85.8 million on nearly $1.6 billion in total revenue during the first quarter of 2015.
But those were the consolidated results.
Among its newly acquired hospitals, losses mounted. In addition to UAHN, Banner last year acquired hospitals in Fort Collins, Colo., and Payson, Ariz. Those “new store” operations produced a loss of $32.5 million in the quarter compared with a loss of $5.5 million in the year-ago period, which only included one month with UAHN.
Banner has been working to cut costs from UAHN and implement its leaner, more standardized operating model across the group. It also is investing significant capital into facility upgrades and new technology, particularly at UAHN's Tucson campus.
Yet acquisitions aren't the only test for Banner, which has been moving rapidly into narrow network, risk-based insurance products. Membership in its full- and shared-risk products have increased 20% year over year.
The Banner Health Network, its accountable-care organization, reported a $14.4 million operating loss in the quarter.
Most of the loss came from its Medicare Advantage plan, Blue Advantage, which it jointly owns with Blue Cross and Blue Shield of Arizona. It also took an underwriting loss on its Blue Alliance product, a narrow network commercial insurance plan.
Banner previously said that high pharmacy costs have been a major factor affecting the performance of its Medicare Advantage plan and it was taking steps to mitigate the impact.