New St. Vincent CEO will inherit financially solid system

It’s a challenging time to be a hospital CEO, but when Jonathan Nalli takes the helm of St. Vincent Health, he’ll have about as strong a hand as anybody to play.

The Indianapolis-based system has better profit margins, a better payer mix and more outside help, via its parent organization, Ascension Health, than any of its in-state competitors, according to its most recently filed annual financial report.

The only apparent weakness for the 22-hospital, Catholic system is that its physician practices are bleeding cash—but that’s likely the case for St. Vincent’s peers as well.

Nalli, 39, will become CEO in February, after a stint at the for-profit Porter Health System in Valparaiso.

In the 12 months ended June 30, St. Vincent pulled in nearly $2.8 billion from its patients. Before accounting for a $11.5 million restructuring charge due to a massive layoff on June 30, St. Vincent’s profits from operations totaled $167 million.

That’s a profit margin from operations of 6.1 percent. By contrast, Franciscan Alliance had an operating profit margin in 2012 of 3.2 percent and Community Health Network had a profit margin of 2.9 percent. Indiana University had an especially good 2012, and posted a profit margin from operations of 10 percent.

St. Vincent's profit margins are broadly based across its operations. It has 17 hospital operating subsidiaries; 15 of them are making money. And one of those, St. Vincent’s new hospital in Fishers, will almost certainly turn profitable as it establishes more of a presence in that wealthy suburb.

Profit margins are especially attractive at St. Vincent Carmel Hospital (32.2 percent), the St. Vincent Heart Center of Indiana (21.6 percent), the St. Vincent Frankfort Hospital (15 percent) and the St. Vincent Seton long-term-care hospital (14.4 percent). St. Vincent’s flagship campus on West 86th Street has a profit margin of 9.2 percent, which translates into $102.5 million in the most recent fiscal year.

A big part of St. Vincent’s financial success is the fact that it has more patients that pay with private health insurance, which pay hospitals rates that are about 20 percent higher than costs, versus Medicare and Medicaid, which pay hospitals below their costs.

Across St. Vincent’s operations, a whopping 58 percent of its patient revenue came through private health insurance plans. By contrast, Franciscan had 39 percent of its revenue from private insurance plans, IU Health had 42 percent, and Community had 44 percent.

Only 9.5 percent of St. Vincent’s revenue came through the poor-paying Medicaid program. And its level of uninsured patients was lower than the other major hospital chains in Indiana.

The glaring weak spot in St. Vincent’s financial report is the St. Vincent Medical Group, which includes about 800 employed physicians. That group lost $115 million in the most recent fiscal year.

Of course, employing those physicians means they can refer patients to St. Vincent facilities, helping St. Vincent keep its beds and operating rooms full.

Hospital executives in general, however, are trying to minimize losses at their physician practices, so they don’t overwhelm those downstream gains.

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