Ascension's outpatient transformation comes at a cost

(Story updated at 7:24 p.m. ET)

As Ascension reinvents itself as a system centered around paying for value and providing outpatient—rather than inpatient—care, the evolution is having anticipated but not exactly welcome effects on its operating results.

Emphasizing outpatient care will undoubtedly put a dent in a health system's volumes, and St. Louis-based Ascension is already starting to see that, eight months after announcing its restructuring away from revolving around hospitals and instead focusing on outpatient care and telemedicine. On a same-facility basis, Ascension saw declines in equivalent discharges, inpatient admissions and other key areas during the first quarter of its fiscal 2019, which ended Sept. 30. It's also seeing higher proportions of patients covered under government payers and expenses from uncompensated care.

"As this transition, and Ascension's investment in population health management and addressing the social determinants of health continues, changes to operating performance are expected," Ascension wrote in a narrative section explaining its results.

Ascension's recurring operating margin was 0.9% in the first quarter, compared with 1.1% during the same period in fiscal 2018. The health system drew $36.4 million in income from operations during the quarter, compared with $11.5 million during the prior-year period.

Inpatient surgeries declined 4.1% on a same-facility basis during the quarter, and emergency room visits fell 4%. Ascension's inpatient admissions fell 3.8% on a same-facility basis, and equivalent discharges fell 0.3%. Same-facility outpatient volumes increased 0.5% during the same time period, and outpatient surgeries increased 1.4% on a same-facility basis.

A smaller proportion of Ascension's net patient service revenue came from commercially insured patients during the first quarter of its fiscal 2019: 42%, compared with 45% at the same time in fiscal 2018. Another 36% of revenue came from Medicare, compared with 34% in the first quarter of fiscal 2018. Fourteen percent of Ascension's net patient service revenue came from Medicaid as of Sept. 30, 2018, compared with 13% in the prior-year period. Eight percent of Ascension's net patient service revenue was self-pay and other as of Sept. 30, 2018, and Sept. 30, 2017.

Ascension reported that its uncompensated care and community benefit spending grew 1.3% year-over-year to $531 million during the quarter.

The health system drew $6.16 billion in operating revenue during the first quarter of 2019, up nearly 11% from $5.55 billion during the prior-year period. Within that, net patient service revenue increased 10.1% to $5.73 billion.

Expenses increased 11.1% during that time to $6.11 billion during the quarter. The majority of the increase was due to Ascension's acquisition of Presence Health. On a same-facility basis, total operating expenses increased $33.4 million, or 0.6%. The report noted offsetting decreases in salaries and wages, benefits and other expenses.

Ascension's excess of revenue over expenses—reported as revenue and gains or expenses and losses—totaled $459 million during the quarter, up from $413 million during the same period in fiscal 2018. The same metric attributable to controlling interest was $415 million in the first quarter of its fiscal 2019 and $353.7 million during the same period a year ago.

The health system reported $459 million in net income during the first quarter of fiscal 2019, compared with $413 million in the prior-year period.

"Ascension care delivery continues to evolve from treating people when they are sick to being a partner in the well-being of individuals—measuring the care we provide by the quality outcomes and experience to patients," the health system said in a statement.

Correction: This story has been updated to correct the total revenue and quarter, and to reflect operating margin as recurring.