CHI cost-cutting boosts results as volume slid in fiscal year

Even as Catholic Health Initiatives' admissions and outpatient visits continued to slide in its recently ended fiscal year, officials say they managed to protect the health system's bottom line through cost-cutting and other maneuvers.

The Englewood, Colo.-based not-for-profit health system's operating loss narrowed to $276.7 million in its fiscal 2018, which ended June 30, down 53% from its fiscal 2017 loss of $593.4 million. The improved position was due in part to a 61% year-over-year decrease in restructuring and impairment losses stemming from the health system's improvement plan.

Both acute admissions and non-emergent outpatient visits dropped about 5% year-over-year. Outpatient surgeries were down 4.5%, and long-term care days dropped 12.6%. Physician visits offered a bright spot, increasing 3.9% year-over-year.

CHI officials wrote in their report that the effects of the volume declines were mitigated through a combination of revenue-cycle improvements and cost reductions. Same store net patient services revenues per adjusted admission was $13,548 in fiscal 2018, compared with $12,990 in fiscal 2017.

"Despite challenges in some markets and a difficult environment overall for health care in this country, we are pleased with the results and look forward to significant progress throughout the current fiscal year," Dean Swindle, CHI's chief financial officer and president for enterprise business lines, wrote in a statement.

Other top-line financial results also improved, including net income that more than doubled to $222 million, yielding a margin of 1.4%. The health system's total operating revenue was about $15 billion in fiscal 2018, down just 0.4% from fiscal 2017. Total operating expenses were $15.1 billion, down 1% from fiscal 2017's $15.3 billion.

CHI's operating earnings before interest, depreciation and amortization jumped to $892.2 million in fiscal 2018, a more than 71% increase from its fiscal 2017, and yielding an operating EBIDA margin of 6%, compared with 3.5% in 2017.

CHI's Texas market, among its most challenged, saw its operating EBIDA margin before restructuring losses grow from 3% in fiscal 2017 to 3.8% in fiscal 2018. Its Nebraska market also improved, growing from 5.3% to 11.4% during that time. The Ohio market, by contrast, dropped from an operating EBIDA of 7.8% in 2017 to 2.7% in 2018. CHI's Pacific Northwest region, which comprises the largest percentage of its consolidated operating revenues, declined from 13.4% in 2017 to 10.6% in 2018.

As of the end of fiscal 2018, 55.6% of CHI's patient revenues came from non-inpatient sources, including ambulatory, physician, virtual and post-acute services, bringing it closer to a 65% revenue diversification goal its board set in 2011. The health system wrote that it also continues to meet its performance improvement initiative of increasing revenues and/or decreasing expenses by about $800 million each year.

"This work continues as CHI's journey to becoming a higher performing organization progresses," the financial report said.

CHI is still working to divest its health plan subsidiary, a move it announced more than two years ago. CHI wrote it has an asset purchase agreement to sell its Medicare Advantage operations in Washington state effective January 2019, and a non-binding letter of intent to sell its commercial operations in Arkansas. CHI wrote that while looking for a buyer, it has also improved the health plan's operating results, turning its $85.4 million EBIDA loss before restructuring and impairment in fiscal 2016 to a positive EBIDA of $8.6 million before restructuring and impairment in fiscal 2018.

CHI continues its slow crawl toward the finish line in its merger with Dignity Health, noting in the financial report that it still needs approval from attorneys general and insurance commissioners in multiple states. The California attorney general's process has been particularly stringent, including hospital-level hearings. A spokeswoman for that office wrote in an email that it will release its decision on Nov. 9.

CHI officials downplayed the financial effects of the CMS' announcement in June that it would cut Medicare funding for heart transplants at CHI's Baylor St. Luke's Medical Center following the deaths of several patients this year. CHI wrote that fewer than half of patients on the heart transplant list are covered by Medicare, and that the heart transplant program only contributed about 2% toward the Houston hospital's consolidated revenue base.