Northwestern Memorial HealthCare boosted its operating margin in its fiscal third quarter, as the Chicago-based academic system continues to grow its footprint into the area's affluent suburbs.
However, the system faces an HHS probe over an unidentified issue and disclosed a $50 million settlement over what executives called “certain facility issues.”
Northwestern's operating margin in the three months ended May 31 hit 7.4%, up from the 6.2% in the same period of 2015. That equated to an $85.2 million operating surplus on $1.15 billion of revenue for that three-month period.
When adding in the not-for-profit system's investments and recent acquisitions, Northwestern tallied a $403.6 million net surplus in its third quarter compared with a $147 million surplus in its 2015 third quarter.
Northwestern has aggressively expanded into the suburbs to complement the academic medical center and school of medicine located in downtown Chicago. The system added KishHealth System, based in DeKalb, Ill., this past December and made its biggest move a couple years ago when it acquired the Cadence Health network in Chicago's far-west suburbs.
Northwestern has six hospitals and more than 4,000 physicians. Centegra Health System, a two-hospital organization in northwest suburb Crystal Lake, Ill., soon could become part of Northwestern as well.
Northwestern is not the only academic system pushing to consolidate. Many experts believe teaching hospitals need to diversify their operations or “risk becoming high-priced, anachronistic institutions in a landscape of highly organized health systems.”
But larger systems usually face more regulatory scrutiny, and Northwestern disclosed new issues facing the organization. HHS' Office for Civil Rights sent a request for information on an unidentified matter, according to the financial documents. The office also has completed its investigation on one of Northwestern's two recent patient privacy breaches.
Separately, this past March, Northwestern reached a $50 million settlement with “various vendors and insurance companies over costs incurred and to be incurred to remediate certain facility issues.”
Northwestern did not immediately respond to requests for comment on this story.
Northwestern's revenue jumped 12% to $3.23 billion in the nine months ended May 31. Its operating margin held mostly steady at 7.1%. Traditional Medicare and Medicaid combined to represent 27% of Northwestern's net patient revenue, showing that most of the system's patients have private commercial insurance.