The operating margin at Mercy Health, the largest health system in Ohio, fell to a slim 0.9% in the first half of this year. Higher labor expenses and the residual effects from a divested insurer hurt the not-for-profit Mercy.
However, Mercy hopes to turn around its financial situation partly through a newly acquired revenue cycle company, which will help Mercy and other hospital systems with collecting patient bills and refining chargemasters.
Earlier this year, Mercy sold off HealthSpan Partners, a health insurance company and physician group that used to be owned by Kaiser Permanente. Mercy was losing large amounts of money from HealthSpan, which led to credit rating agencies downgrading the system's bond ratings.
More health systems have acquired or started their own health plans, but a few have already faltered, resembling similar missteps in the industry a couple decades ago. Catholic Health Initiatives followed in Mercy's footsteps in June, deciding to divest its own health insurance operations.
Mercy now lists HealthSpan as discontinued operations and recorded a gain from that move. But the health system's operating surplus still plummeted 76% to $10.3 million in the second quarter of this year, according to Mercy's second-quarter financial report. Net revenue in the quarter increased 6% to $1.14 billion due to more surgeries, inpatient admissions, doctor visits and emergency room visits.
In the first six months of the year, Mercy's operating surplus was $20.4 million, down 67% from the first half of 2015.
Including investments, interest rate swaps and other non-operating financial items, Mercy ended the first half of 2016 with a total surplus of $10.7 million compared with $83 million in the same period last year.
Aside from the health insurance losses and higher salaries and benefits costs for employees, Mercy executives said the system's “revenue cycle performance has been challenged due to system conversions and implementation.” Consequently, in May, Mercy bought Ensemble Health Partners, a revenue cycle firm based in Huntersville, N.C., for $60 million. The deal could be worth an additional $50 million if “certain metrics are achieved,” the system said in its financial report.
Other health systems, including Dignity Health and Ascension Health, have acquired revenue cycle companies to help more with bill collections and explaining what patients owe. More people with job-based health insurance and individual coverage have high-deductible policies, which puts more pressure to collect money on hospitals and doctors.
