Operating income vs. investment income — what's more important to focus on?

Vail (Colo.) Health is a small health system located in the ski-rich Rocky Mountains and perhaps most famous for its world-renowned orthopedic specialist Steadman Clinic.

Its annual revenues with its 56-bed flagship hospital are not up with the big boys, but results released March 15 encapsulate some of the leading trends in the financial performance of nonprofit hospitals and health systems, most notably the difference in how to approach investment income and operating income.

While many systems across the country reported a dire combination of declining operational and investment income in fiscal 2022, it is fair to say that some systems have shown signs of improved investment returns in the latter half of 2022 and into 2023.

For Vail Health, while it reported net income of $19.3 million as at Jan. 31, 2023, much of that was boosted by improved investing performance. Operating income was dragged down by sustained expenses to post a loss of $4.3 million.

Such figures compare with operating income of $5.2 million as of Jan. 31, 2022, and net income overall of $2.1 million.

While investment returns should be looked at over a multiyear focus, operating income was something to be reviewed much more regularly, argues Matt Swafford, CFO of Bend, Ore.-based St. Charles Health.

"The real crisis in healthcare is operational," he wrote in a recent LinkedIn post. "They are two different components of financial performance with two totally different risk profiles and risk horizons. Operations requires daily/weekly/monthly/annual ongoing performance and risk management work. Investment portfolios need a five-year horizon for ongoing performance and risk assessment."

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