NS-LIJ's Margin Narrows, Rating Rises

Crain's Health Pulse
August 29, 2014
NS-LIJ's Margin Narrows, Rating Rises

Fitch Ratings has upgraded some $1.6 billion of North Shore-LIJ’s outstanding debt to A from A-, citing the system’s growing market share and investments in long-term performance. Those investments are also a driving force behind the shrinking operating margins and lower income in North Shore-LIJ’s latest financial disclosure.

NS-LIJ’s operating income for the six months ended June 30 was $38.1 million, down from $57.2 million in the year-earlier period. Its margin narrowed to 1.1%, from 1.7%. Net patient revenue grew 3.7%, to just under $3 billion. Of that amount, $2.2 billion came from four institutions: Long Island Jewish Medical Center, North Shore University Hospital, Staten Island University Hospital and Lenox Hill Hospital.

“What you see across the marketplace in health care is a decline in inpatient utilization,” said Mark Solazzo, chief operating officer of the health system. “We’ve seen that in our system as well, but not as severely as our competitors.”

In its filings, the system blamed the decline on unexpectedly severe winter weather, which drove up temporary staffing costs while delaying patients with scheduled procedures. At the same time, NS-LIJ has been expanding its network and growing its market share, which increased to 28.8% in 2013, from 26.8% in 2010. The system’s “significant and growing presence in the New York metropolitan service area, its manageable debt burden and operating stability” prompted the rating upgrade, Fitch said.

Nonetheless, margins will stay slimmer for the short term. Mr. Solazzo said the 1.1% margin was “on target for our budgets for the year.” The system is on track for an $80 million operating profit in fiscal 2014, according to Fitch, as it completes a $2.2 billion capital plan over the next two years.

Other operating revenue, which includes income from lab services and insurance premiums from NS-LIJ CareConnect, grew 28.9%, to $198.7 million.

“We have significant growth plans for CareConnect,” Mr. Solazzo said.” Fitch agreed, saying that while CareConnect represents a $44 million investment in its first two years, the insurance product should “reach a break-even based on 40,000 enrollees in the commercial product by mid-2015” and exceed 75,000 members by 2017.

NS-LIJ has also spent money growing its physician and ambulatory-care network and retooling new facilities, including stand-alone emergency department Lenox Hill HealthPlex in Greenwich Village. The ED will cost another $100 million to retool, but visits have so far topped expectations, Fitch said. HealthPlex helps drive admissions to Lenox Hill Hospital. The rating agency views the two Manhattan outposts as “important strategic gains for NS-LIJ, providing the system a significant foothold in Manhattan, while expanding and strengthening its presence in key areas of Queens.”

“This is a challenging time in health care,” said North Shore's Mr. Solazzo, “but we have a solid plan and we feel very good about executing it.”


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