A $265 million investment gain in 2016 offset a tough operating year at five-hospital Inova Health System.
Though revenue jumped 10% in 2016 to $3.3 billion, Falls Church, Va.-based Inova's operating income fell to $130.9 million before special charges last year compared with $221.4 million in 2015, Inova's audited year-end financials show.
The income decline in part stemmed from their larger and more expensive workforce than the prior year, including for more employed physicians, the system noted in its comments.
Not-for-profit Inova also was hit with a $64.5 million charge for terminating its pension plan and another $48.4 million charge to reduce the book value of its INTotal Health Medicaid health plan acquired in December 2012.
The disclosure noted that Virginia failed to expand Medicaid under the Affordable Care Act, unlike 31 other states and the District of Columbia.
INTotal competed for but was not selected for a new Virginia program in 2016 that etched out special needs populations for Medicaid managed care. That loss “could result in an annual premium reduction of up to $40 million annually” for INTotal Health, the financial disclosure said.
With the special charges, Inova's 2016 operating income was $18 million compared with $221.4 million in 2015.
Inova spent $238 million in 2016 to expand and renovate its facilities. That is set to rise to $400 million in 2017 as Inova begins building a new cancer hospital across the street from its flagship hospital, Inova Fairfax Medical Center.
Inova Chief Financial Officer Richard Magenheimer said the special need population that is being carved out of its Medicaid health plan represents about 40% of the plan's revenue. The plan posted revenue of about $120 million in each of 2016 and 2015, he said.
But the system's non-operating results rode to the rescue. Inova scored a $265 million gain on investments and other income compared with a non-operating loss in 2015 of $24.2 million.
On that gain, Inova's net surplus was actually higher for the year at $283 million compared with a net surplus of $197.2 million in 2015.
Inova's 10% increase in revenue in 2016 was driven by higher volumes in fee-for-service care, the system noted.
Admissions across Inova's five hospitals rose 3.8%, with deliveries increasing 4.6% and emergency admissions rising 2.6%.
The opening of Inova's Women's Hospital and Children's Hospital on the newly renovated Inova Fairfax Medical Campus contributed to the increases as did other facility expansions in 2016.
Freestanding ambulatory surgery cases also rose 5.2% over the prior year, continuing a trend across the industry of new technology allowing more surgeries to be performed typically at a lower cost in an ambulatory setting.