Northwell Health Is an $8.7 Billion Behemoth, but Margins Are Tight

The Well wellness site

Crain's Health Pulse
April 29, 2016

New York state’s largest health system got even bigger in 2015, but Northwell Health’s acquisitions, new joint ventures and big bet on health insurance haven’t yet resulted in higher profits.
The 21-hospital system earned $89.7 million in operating income last year, with an operating margin of 1%, underscoring the difficulty of attaining profitability even at an organization with Northwell’s scale. That margin is down from 1.2% in 2014. Net income was $29 million, down from $190.8 million in 2014.
Northwell recorded $8.7 billion in operating revenue, up 17.3% from the prior year, with higher patient volume and payment rates driving the growth, according to audited financial statements. A shift in payer mix toward Medicaid slowed revenue growth, management said in commentary that accompanied the financial statements. Management also attributed higher revenue to the acquisition of Phelps Memorial and Northern Westchester hospitals, expansion of its ambulatory network, investments in joint ventures and higher enrollment at its insurance companies.
Operating expenses increased at a faster clip, 17.5%, to $8.6 billion. The growth in expenses was fueled by higher patient volume, and by investments in capacity, infrastructure, and in population health management to prepare the system for the shift to value-based payments, among other factors.
Northwell’s insurance plans, which include CareConnect and its FIDA and MLTC plans, more than doubled premium revenue to $228.4 million. Last year, they collectively lost $41.4 million, 25.6% more than their 2014 loss. The plans had 72,000 members at the end of 2015
Operating income at the system’s largest hospitals boosted results. North Shore University Hospital and Long Island Jewish Medical Center earned $55.9 million and $57.9 million, respectively. Lenox Hill Hospital recorded $9 million in operating income last year, a marked improvement over the $10.6 million operating loss in 2014.
Peconic Bay Medical Center in Riverhead, L.I., which officially joined Northwell in January, reported $164 million in operating revenue in 2015, but its financial results were not included in Northwell’s consolidated financial statements.
Northwell’s investment in the Feinstein Institute for Medical Research, a major priority for the health system, also diminished profit, resulting in a $39.4 million loss last year.
The system recorded a $115.6 million non-cash gain related to the 8% stake it acquired in Optum 360, a revenue cycle company, in exchange for contributing intellectual property to the company. Northwell agreed last July to use Optum 360 for its revenue-cycle needs at most Northwell hospitals.
The system recorded a $50.5 million loss on investments, including unrealized losses, a year after earning $76.5 million in that category.

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