The operating margin at Cedars-Sinai Medical Center—the prominent, high-priced academic medical center in Los Angeles—stayed well above industry norms last year mostly because of higher admissions.
The system described the higher inpatient activity as “favorable,” according to financial documents recently filed with bondholders.
It's an unusual term to describe hospitalizations today considering health systems are trying to reduce the number of times people have to stay overnight. Value-based care and population health are the buzzwords that define the shift away from unnecessary inpatient stays and paying for every procedure and toward outpatient, community-based care.
But Cedars-Sinai CEO Tom Priselac said using the term “favorable” to describe higher amounts of admissions is strictly financial jargon and does not diminish the medical center's efforts to reduce costs and manage care more effectively.
“It's a particular word of art that's used in the financial world when they're speaking about any number relative to what was budgeted,” Priselac said.
In the fiscal year that ended June 30, inpatient admissions were 5.5% higher, or “favorable,” compared with the previous year, the bondholder documents said. Cedars-Sinai ended the year with almost 50,000 total admissions.
Priselac said Cedars-Sinai is “very much all-in” on value-based care, citing the system's accountable care organization under the Medicare Shared Savings Program and its HMO partnership with Anthem called Vivity. He argued the pent-up demand for healthcare services—which experts have tied to the insurance expansions under the Affordable Care Act—is affecting the industry right now.
“Bending this cost curve is going to take considerable effort over many years,” Priselac said. “There's a long tail of pre-existing disease that exists in the country.”
Cedars-Sinai's operating margin in fiscal 2016 was 9.3%, down slightly from its 10.1% margin last year, according to separate audited financial documents. Cedars-Sinai's revenue totaled $3.68 billion, while the operating surplus was $340.6 million.
Expenses outpaced revenue growth in 2016. Salaries and benefits in particular rose by 13% year over year. Hospitals and health systems have hired droves of people the past two years as a result of demand and have paid higher salaries to attract and keep the best talent.
“There are major structural shortages in virtually every healthcare-related profession,” Priselac said. “Nursing is the most visible and the most significant, but it extends to pharmacists, imaging technologists, medical technologists, even people who do coding and billing. The demand for people in those fields is quite high.”