(Story updated at 8:13 p.m. ET)
Profits were up at Premier, thanks to rising supply chain revenues and a recent acquisition.
The Charlotte, N.C.-based group purchasing organization and performance improvement company reported adjusted fully distributed income of $65.2 million during the second quarter ended December 31, an increase of 6% from the same period the prior year. Revenue increased 23% to $358.5 million.
The adjusted income figure reflects ongoing exchanges of GPO member-owners' Class B stock into Class A stock after the company's initial public offering in 2013. This figure reports the financials as if all members have exchanged their stock and the company was fully public. Premier's fourth-quarter profit under standard accounting rules increased 193% to $178.7 million.
Supply chain revenues were $272.7 million, thanks in part due to a 7% increase in administrative fees from Premier's GPO members. Premier acquired two non-acute GPOs owned by the Greater New York Hospital Association in November, but a $5.6 million cash contribution from the two organizations, Innovatix and Essensa, wasn't counted as revenue due to accounting adjustments related to the purchase.
Supply chain product revenues were up significantly following Premier's acquisition of specialty pharmacy Acro Pharmaceutical Services. But the company noted that revenues from Acro were lower than expected due to distribution issues and a delay in obtaining the reissue of a California dispensing license following the acquisition. Both problems have since been fixed.
Premier's supply chain revenues also suffered from a industry-wide decline in revenues related to hepatitis C treatments. Gilead Sciences and other manufacturers have reported declining sales of hepatitis C drugs due to a shifting payer mix, fewer new patients and higher rebates.
The company's performance services segment saw a 3% drop in revenue to $85.9 million, primarily due to a decrease in revenue from consulting services, the company said. Revenue was impacted by the timing of client engagements compared to the prior year, Premier said. The segment, which performed as expected, includes software that helps systems measure clinical performance.
Premier reported $124.2 million in adjusted fully distributed net income during the six months ended December 31, up 5% from the same period the year before. Six-month revenue was $671.8 million, a 19% increase from the prior year.
Premier maintained its previously released guidance for its performance services segment, while lowering its expectations for supply chain revenues, solely due to the accounting adjustments related to the acquisitions of Innovatix and Essensa. The company expects total revenue of $1.48 billion to $1.55 billion for fiscal 2017, a 28% to 34% increase from the year before, and adjusted fully distributed earnings per share of $1.80 to $1.93, a 13% to 21% increase.
During a conference call about the earnings results, Premier CEO Susan DeVore gave her take on the future of her company under President Donald Trump and a Republican Congress. She said the current GOP proposals to replace the Affordable Care Act would continue to inflict reimbursement pressure on healthcare organizations and further shift performance risk onto providers.
DeVore believes Premier is well positioned to help health systems through changes under the new administration and Congress through performance improvement services, including software and services that offer performance analytics and align physicians on issues of productivity and cost. Premier is also expecting increased competition in the medical device and pharmaceutical sectors – Trump has made comments calling for increased competition, and implementation of the recently passed 21st Century Cures Act is expected to assist that goal.
Premier COO Mike Alkire said the company is looking to expand its relationships with academic medical systems. He announced that the company had recently signed a comprehensive agreement with Wake Forest Baptist Medical Center that includes GPO and pharmacy services and a subscription to Premier’s performance improvement software. The agreement also includes a consulting deal in which Premier experts will help the hospital reduce its supply spend.