Bull Market Boosts Hospitals’ Balance Sheets

Crain's Health Pulse
September 4, 2014
Bull Market Boosts Hospitals’ Balance Sheets

Hospital margins across New York City have taken a hit from dropping inpatient volumes and declining reimbursements. But at many institutions, increased investment revenue is helping to make up for operating shortfalls.

At North Shore-LIJ, operating income for the first half of 2014 was $38 million, on $3.6 billion in revenue. An additional $84 million of income came from investments, more than double its investment income the year before.

New York-Presbyterian had operating income of $100 million for the first half of this year. On top of that, $75 million in investment income—a 60% jump from the previous year—pushed Presby’s net income to $175 million for the year.

New York Hospital Queens, which made $1 million on investment income in 2013, posted a $6 million investment gain for the first half of 2014.

Investment income is a welcome boost to historically low operating margins. The median operating margin for a nonprofit health care system was 2.2% in 2013, down from 2.9% the year before, according to a review issued by Standard & Poor’s last month. The margins for stand-alone hospitals were even lower at 2.1%, down from 2.6% in 2012.

“Balance sheets are doing pretty well,” Martin Arrick, S&P’s managing director of U.S. public finance ratings, previously told Pulse. “Earnings from the stock market, interest and dividends flow to the income statement, and that helps boost things like overall cash flow.”

It’s also a potential risk, as more hospital assets hinge on the potentially volatile markets. At Mount Sinai Hospital, securities and alternative investments make up nearly a third of its assets, more than any other asset class, including property. Nonoperating revenue is also growing as a share of income. In 2013, the portion of hospitals’ total income that didn’t come from operations was the highest since 2007, according to the S&P report.

“When your operations are stressed, it leaves you a little bit at the mercy of investment markets,” Mr. Arrick said. “That’s not a risk that gets talked about that much when you’ve had a great year.”

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