Dignity Health's operating loss widens to $66.8M with loss of state provider-fee revenue

Dignity Health, a 39-hospital system based in San Francisco, saw its operating loss widen in fiscal year 2017 even as it booked higher revenue and held expenses in check. However, like many systems, it benefited from higher investment income.

Dignity recorded revenues of $12.9 billion for the year, which ended June 30, compared with revenues of $12.6 billion for fiscal 2016, according to recently released bondholder documents.

Dignity and other California healthcare providers have struggled with loss of funds from the state's provider-fee program, which is designed to help hospitals and health systems treat a large number of indigent patients. The program levies a tax on hospitals, and the state then pools funds to receive federal matches for Medicaid dollars, which are distributed back to hospitals based on the number of indigent patients they treat.

In November 2016, California's participation in the provider-fee program was made permanent with the passage of Proposition 52, which hobbles state lawmakers' ability to change or end the program. However, CMS has not approved the first iteration of the program under the permanent legislation, which covers the period from Jan. 1, 2017, to Dec. 31, 2019. Accordingly, Dignity did not include provider-fee program payments for the first six months of this year in its financial statements for fiscal year 2017.

Although Dignity held its expenses in check, the loss of provider-fee revenue caused the system's operating loss to widen from $63.4 million in fiscal 2016 to $66.8 million in the most recent fiscal year. However, had a full 12 months of provider-fee funds been approved and recorded, Dignity said it would have ended the fiscal year with operating income of $149.4 million.

In line with Dignity's core mission of offering affordable, quality care to all, the system provided $2.6 billion in charity care, community health programs and other community support programs in fiscal year 2017, up from $2.2 billion the year prior. Dignity Health Senior Executive Vice President and CFO Daniel Morissette told Becker's Hospital Review he's proud of the many ways Dignity is able to support its patient population.

"We're proud of the fact that we continue to play a huge role in expanding access to care, and that we continue to find ways to deliver cost-effective, high-quality care," he says. "We are proud we've been able to continue to invest in our communities and the people we serve." 

To navigate the headwinds Dignity is facing, the system has a multiyear operational improvement plan in place focused on adopting more efficient ways of delivery high-quality patient care. The system made progress with some of those initiatives in the most recent fiscal year, and Mr. Morissette says Dignity aims to make more improvements in the year ahead.    

"We continue to make operational improvements to strengthen our organization, and we're doing that through finding ways to grow revenue as well as through cost efficiencies … and through innovation," he says. "We're going to continue to focus on adjusting our revenue and cost structure to meet the changing demands in healthcare."

After accounting for investment gains of $555.5 million, Dignity's net surplus was $383.6 million in fiscal year 2017, compared to a net loss of $237.8 million in the year prior. With the full year of provider-fee payments, the system said its net income would have jumped to $599.8 million.

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