Health Care & Life Sciences and Health Care & Insurance

Cuts, price hikes fuel IU Health's quarterly profit

August 11, 2014

The decline in patient visits slowed a bit for Indiana University Health in the second quarter, allowing the hospital system to use a price increase and cost cuts to significantly boost operating profit.

IU Health suffered a 3.9-percent decline in patients staying overnight compared to a year earlier. Surgeries at IU Health facilities dropped 8.4 percent.

While significant, the year-over-year declines were smaller than IU Health saw in its first quarter, when inpatient visits fell 9.8 percent and surgeries skidded 9 percent.

IU Health executives, in their report to bondholders, said the fewer patient visits “are a reflection of the current industry-wide trends in which health care systems across the nation are experiencing declining utilization.”

Indeed, hospitals around Indianapolis and the nation have seen declines in inpatient visits across nearly all service lines, sparking them to cut staff, reduce the number of beds they staff, and consider the future use of some facilities.

“As the health care environment is changing, we as a health system need to look at less hospital-centric ways to provide care,” Scott Black, IU Health’s vice president of strategy and market development, said during a June interview in which IU Health officials revealed they will merge two of their largest hospitals—Methodist and University—into one location.

In the second quarter, fewer patient visits at IU Health's 18 hospitals were offset by an average price hike of 1.5 percent. Revenue from patients rose 4.4 percent, to nearly $1.3 billion, helped partly by making sure as many patients as possible were signed up for the various health insurance programs for which they qualify.

And the cost cuts IU Health implemented last year, which included laying off more than 900 workers in the fall, pushed its expenses down. IU Health employed 2,000 fewer full-time-equivalent employees in the second quarter this year than in the same period last year. IU Health has nearly 27,700 full-time-equivalent employees.

Operating expenses fell 2.5 percent, to $1.2 billion. According to IU Health spokeswoman Whitney Ertel, expenses were also reduced by IU Health's implementation of lean processes, savings on supplies by consolidating the number of vendors it uses, and budget reductions for back-office areas by 3 percent to 5 percent.

Rising revenue from price increases and shrinking expenses due to layoffs helped IU Health’s profit from operations rise 162 percent, to $176.7 million.

After adjusting for inconsistent special payments from the state Medicaid program and the federal Medicare program, IU Health’s operating profit quadrupled, to nearly $158 million.

Indianapolis' other major hospital systems have yet to report second-quarter results to their bondholders.

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