Independence Health: Hospitals post positive operating revenue but health system losses remain

Independence Health System’s five hospitals posted positive operating revenue for the fiscal year ending June 30, hospital officials said Monday, even as the former Butler and Excela health systems individually lost millions of dollars in that 12-month period.

Latrobe Area Hospital topped all the other health system hospitals — Butler Memorial, Clarion, Westmoreland and Frick — by posting $22.5 million in excess of operating revenue, followed by Westmoreland Hospital in Greensburg at $16.9 million and Frick Hospital in Mt. Pleasant at $7.3 million. Butler Memorial made $10 million above expenses, while the smaller Clarion posted only $973,000 above operating expenses.

But, for the fiscal year that ended June 30, Butler Health System posted a loss of $38.0 million, up from $31.9 million for the fiscal year ending June 30, 2022. Excela Health lost $26.2 million from its operations, an increase from $21.8 million in the previous fiscal year. The two former health systems still file financial disclosure reports separately, rather than a combined statement under Independence Health.

“Since covid-19 expenses have soared. We’re locked into contracts,” and face wage inflation, higher pharmacy costs and increased medical supply costs, said Paul Bacharach, chairman of the Independence Health board of trustees.

“It outstrips revenue,” Bacharach said.

Expenses are continuing to increase more than revenues, said Thomas Albanesi, Independence Health’s chief financial officer. The payment for services remains inadequate at a time when there are fewer patients are being admitted to the hospitals, Albanesi said.

Health system officials have said the reimbursement rates from the government’s Medicare and Medicaid programs fail to cover costs of services. Both Excela Health and Butler Health receive about 60% of their revenue from Medicare.

“The payments must be updated to reflect financial reality,” Albanesi said.

The inadequacies of physician reimbursement from governmental and third-party payers is another problem, Albanesi said.

Hospitals that employ physician networks that suffer operating losses because of inadequate reimbursement from the government third-party payers, “have to be funded from profitable hospital operations,” Albanesi said. It is paramount that physician reimbursement be increased … to enable fair market physician compensation to be funded solely by billing for their services, he added.

Independence Health leadership remains on track with the financial improvement plan it laid out to bondholders last month. The health system anticipates reducing losses in 2024, dropping to about $24 million. Albanesi said he was prohibited by financial requirements to predict when the health system might turn a profit.

Commenting on the merger over the past 11 months, Ken DeFurio, Independence Health CEO, said “it’s been a challenge” to combine two legacy health systems.

Rather than looking to affiliate with two regional health systems such as Penn Highlands Health Care that operates the Mon Valley Hospital or the Pennsylvania Mountains Care Network that has both Indiana Regional Medical Center and the Punxsutawney Are Hospital, DeFurio said that Independence Health might be “a good option for them.”

Related:

• Butler Health System credit rating continues to slip downward

• Independence Health sees about $23 million in losses over 3-month period

• Butler Health System losses nearly doubled in 2023, according to financial statements