Livonia, Mich.-based Trinity Health ended its fiscal year with lower-than-average margins that were dragged down by costly medical claims from its Medicare Advantage plans and increased labor and supply costs.
The not-for-profit Catholic health system reported a massive $65.3 million liability charge in the year ended June 30 after it identified data submission errors to the CMS over a six-year period for its Ohio Medicare Advantage plan Medigold, which has about 57,000 members under its Mount Carmel Health System in Columbus.
Ben Carter, CFO of Trinity, said during an investor call Wednesday that the CMS is still reviewing the error but “we think the ($65 million) estimate is solid.” The error was made in regards to clinical information the system submits to establish premium rates.
Medigold members also drove up expenses for the system by $51.4 million due to increased membership as well as more costly claims.
At the same time, labor expenses increased by 17.6% from $7.4 billion in 2015 to $8.7 billion in 2016. Supply costs rose by 17.3% from $2.3 billion to $2.7 billion.
Trinity last year also acquired St. Joseph's Health in Syracuse, N.Y., and St. Francis Care in Hartford, Conn., which contributed to $13 million in costs.
The 93-hospital system reported an operating surplus of $151.3 million, or an operating margin of .9%, in the year ended June 30. This compares to operating surplus of $470 million and a 3.3% operating margin the prior year.
Operating margin improved in the second half of the year from .5% to 1.3% due in part to cost saving efforts of approximately $120 million as a result of improved performance at financially challenged facilities and other cost reduction initiatives.
Carter said Trinity took notice of its depressed margins in the beginning half of 2016 and made changes to address it. The system limited new hires. It also made management changes and revisited supply utilization at facilities that were performing below expectations. The system also continues to monitor performance metrics across its 22-state network.
The system will continue to make similar cost-saving efforts in fiscal year 2017, Carter said. It is also betting expansion in it accountable-care organization programs will lead to increased cost savings.
Revenue overall increased by 14% from last year from $14.3 billion to $16.3 billion.