Henry Ford Health System sees annual operating income dip 15%

Henry Ford Health System saw revenue increase in 2016, but the Detroit-based health system ended last year with lower operating income than in 2015.

The five-hospital system's revenue climbed 12.9 percent from $5.05 billion in 2015 to $5.7 billion last year. However, the system's expenses outpaced revenue growth, according to recently released bondholder documents.

Henry Ford Health System said labor and supplies costs grew year over year, increasing 19.9 percent and 15.3 percent, respectively. The system said the labor cost growth was attributable, in part, to its acquisition of Jackson, Mich.-based Allegiance Health Group. The acquisition also caused supplies costs to increase due to higher patient volume. "This volume growth more than offset significant savings achieved in hospital supply costs due to aggressive product standardization and contracting initiatives," the system said.

The system's softened performance last year was also attributable to its affiliated health insurance plan's Medicaid and PPO exchange business. Henry Ford Health System said Michigan's Medicaid rebidding process caused the health plan's margin to decline last year.

Henry Ford Health System recorded operating income of $95.09 million in 2016, down 15 percent from $111.92 million in the year prior. The system's operating margin decreased to 1.7 percent last year from 2.2 percent in 2015.

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