Banner Health sees net income drop 33%, echoing national trend among nonporfits
Supply costs and physician and professional fees spawned an increase in total expenses to $4.1 billion for the six months ending June 30 this year.
Arizona-based Banner Health saw its net income plummet 33 percent as its expenses crept dangerously close to equaling its revenue for the first six months of 2018, according to unaudited financial statements.
Banner Health and its subsidiaries own, control or lease hospitals, clinics, nursing homes, clinical laboratories, ambulatory surgery centers and other healthcare-related facilities across six western states.
Breaking down the numbers, Banner saw about $4.4 billion in total revenues for that period up from roughly $4 billion in the same period of 2017. This included a substantial climb in revenue from insurance premiums to $703,000 from roughly $571,000 during the same period in 2017.
However upticks in supply costs and physician and professional fees spawned an increase in total expenses from $3.8 billion in the first six months of 2017 to $4.1 billion for the six months ending June 30 this year. Physician and professional fees climbed to $98.6 million from $91.8 in the same period last year. Supply costs jumped to $675 million from $631.9 million.
All told, Banner Health saw its operating income drop to roughly $127 million this year from about $191 million the same time last year, records showed.
During the first six months of 2018, Banner entered into a business venture with Select Medical that will own and operate Banner and Select's Arizona inpatient and outpatient rehabilitation services. The business venture, BHSM Rehabilitation, was born in December 2017 and started outpatient operations on May 1, 2018. Banner holds a 51 percent controlling interest in BHSM and Select holds a 49 percent non-controlling interest.
Banner contributed cash of $1,463,000 on May 1, 2018 into BHSM. The BHSM business venture agreement also has Banner investing a little more than $61 million for the construction of three new inpatient rehabilitation hospitals and the growth of the outpatient rehabilitation business.
Two of the three will break ground in the first half of 2019, with the third in mid-2020. Construction is expected to take 18 months to complete.
Banner's financial challenge underscores a trend highlighted by a recent report from Moody's Investor Service that showed expenses continuing to outpace revenue for nonprofit hospitals for the second year running.
Fueling the trend are lower reimbursement rates, a shift to outpatient care, growing merger and acquisition activity, and rising ambulatory competition.
Moody's data also showed a spike in operating deficits for hospitals and lower absolute operating cash flow in 2017, with 28.4 percent of hospitals reporting operating losses up from 16.5 percent in 2016. The number of providers reporting lower absolute operating cash flow more than doubled from 24 percent in 2015 to 59 percent, a five-year high.
Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com
