Dignity reports strong fiscal 2018 as it preps for merger with CHI

Dignity Health's grew its net income by 132% in the health system's fiscal 2018, due in part to increased patient revenue.

The San Francisco-based health system generated net income of $988 million in its fiscal 2018, which ended June 30, compared with $425.7 million in fiscal 2017. Revenues grew by nearly 11% year-over-year—almost 5% higher than expense growth—from $12.9 billion in fiscal 2017 to $13.7 billion in the recently ended fiscal year.

"Our business model continues to drive strong performance through a disciplined approach to managing our operations and growth opportunities," Dignity CEO Lloyd Dean said in a statement. "We remain steadfast in the belief that we can deliver a bold new health care enterprise of the future through our alignment with Catholic Healthcare Initiatives."

Dignity is working to finalize its merger with fellow not-for-profit health system CHI, based in Englewood, Colo., by the end of the year. Dignity officials had in the past expressed concern over whether CHI's financial performance and heavy debt load could be a detriment once the merger is complete, but Dean's statement included no hint of reservation.

Despite a 5% year-over-year drop in both acute admissions and outpatient visits in its fiscal 2018, CHI managed to narrow its operating loss in fiscal 2018 to $276.7 million, compared with $593.4 million in fiscal 2017.

Dignity boasted operating income, by contrast, of $529.3 million in fiscal 2018, compared with a loss of $66.8 million in fiscal 2017. Net income attributable to Dignity was slightly lower than total net income: $932.5 million in fiscal 2018, compared with $383.6 million in fiscal 2017.

For Dignity, a major tailwind came from backlogged California Provider Fee payments, of which the health system received $447 million in fiscal 2018, plus an additional $217 million in catch-up related to fiscal 2017. Dignity also drew a one-time gain of $120 million from the merger of its urgent-care and occupational medicine subsidiary, U.S. HealthWorks, with Select Medical's Concentra Group Holdings. Dignity also said it received a one-time cash distribution of more than $500 million as part of the deal.

Dignity disclosed that in June it acquired the remaining 50% interest in AGH Phoenix, which operates Arizona General Hospital in Laveen and is scheduled to open another hospital in Mesa this fall. Dignity wrote that the purchase price is being adjusted "to reflect new information obtained about facts and circumstances that existed as of the acquisition date." A spokesman wrote in an email there is a one year period within which the price can be fine tuned if better information is obtained. The Laveen hospital bumped Dignity's total number of acute care hospitals to 40.

Dignity's report did not include volume data, and a spokesman could not provide such information as of press time. The report did say that 58% of Dignity's net patient revenue came from inpatient services in 2018, up 1% from 2017.

Dignity recorded a $40 million tax benefit in 2018 from the Tax Cuts and Jobs Act's reduction of the federal corporate tax rate from 35% to 21%. The health system also wrote it was not significantly affected by other provisions of the new law, including its tax on executives whose pay exceeds $1 million.