Sharp HealthCare's operating income tumbles 49%

San Diego-based Sharp HealthCare saw operating income drop 49 percent in fiscal year 2017 as expenses rose and revenue remained flat, according to recent financial documents.

The nonprofit health system reported operating income of $151.1 million in the year ended Sept. 30, down from $296.8 million recorded in 2016. Sharp HealthCare CFO Staci Dickerson and CEO Michael Murphy told Becker's the decline reflected a $28 million drop in state Medicaid provider fee income, an increase in workforce salary and benefits, and flat patient volumes in 2017 compared to 2016.

"I wouldn't characterize us as being any different from the vast majority of, if not all of the [healthcare] industry. Revenues are not increasing at the same rate as expenses, and Sharp is not immune to that," Mr. Murphy said. He added the workforce investments were "wise and appropriate."

Sharp HealthCare's revenue hovered at $3.5 billion in 2017, nearly unchanged from 2016. However, the system's expenses grew about 5 percent to $3.3 billion in 2017, compared to $3.2 billion a year prior.

Including nonoperating losses, Sharp HealthCare ended fiscal year 2017 with net income of $337.5 million, down nearly 22 percent from fiscal year 2016.

Moody's Investors Service recently assigned its "Aa3" rating to Sharp HealthCare's proposed $150 million series 2017A, $74.5 million series 2017B and $74.6 million series 2017C bonds, and affirmed its "Aa3" rating on its parity debt, affecting $509 million of debt. The assignment and affirmation is a result of several factors, including the health system's strong balance sheet metrics, growing market share, wide array of clinical offerings and stable strategic position. Moody's also acknowledged the health system's challenging payer mix, weaker operating performance in fiscal year 2017, upcoming capital spending and highly competitive market. S&P Global Ratings also recently upgraded Sharp HealthCare's rating to AA.

Alia Paavola contributed to this article.

Editor's note: This article was updated Dec. 14 at 1 p.m. CT to include recent bond rating reports.

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