Dartmouth-Hitchcock records $39M operating loss as expenses grow

Lebanon, N.H.-based Dartmouth-Hitchcock recorded an operating loss of $39 million in fiscal year 2016, compared to an operating loss of $9 million in the year prior.

D-H reported revenue of $1.8 billion in FY 2016, up 12 percent from $1.7 billion in FY 2015. However, rising expenses offset the system's revenue gains. D-H said expenses increased to $1.9 billion in FY 2016, compared to $1.7 billion in FY 2015.

Fitch Ratings attributed D-H's financial performance in FY 2016 to an unanticipated $12 million operating loss at Mary Hitchcock Memorial Hospital and Dartmouth Hitchcock Clinic.

"The loss was driven by erroneous revenue recognition following the implementation of a new billing system in October 2015, which had to be reversed during the fourth quarter of FY 2016," Fitch said.

D-H ended FY 2016 with a net loss of $44.8 million, compared to a net gain of $70.9 million in FY 2015.

Fitch expects financial performance to improve in FY 2017. The ratings agency has removed the negative rating watch and affirmed the "A" rating on $57.5 million in series 2009 revenue bonds and $75 million in series 2010 revenue bonds issued on behalf of the D-H obligated group.

Fitch said the removal of the bonds from rating watch negative is based on D-H having implemented a performance improvement plan for Mary Hitchcock Hospital and Dartmouth Hitchcock Clinic following the operating loss in FY 2016.

The improvement plan consists of $80 million worth of "both expense cuts and revenue enhancements" to stabilize its operations, according to Fitch.

The ratings agency said approximately $32 million of these identified improvements are expected to come from workforce reductions of non-patient care positions, with the balance coming mainly from supply chain and physician productivity.

Overall, Fitch said, D-H aims to achieve a $10 million operating income by the fourth quarter of FY 2017 (at least breakeven for the full year) and a 2 percent to 3 percent operating margin by the end of FY 2018.

The improvement plan so far has resulted in breakeven operating performance for the first quarter of FY 2017, according to D-H's unaudited financial results for the quarter.

 

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