December 2012

Positive Financial Performance in FY2012

End-of-year financial statements show that CHI had a positive financial performance during fiscal year 2012. CHI made significant investments in acquisitions, clinical improvements and operational efficiencies during 2012, all of which tend to decrease operating margin. Still, CHI exceeded its operating margin goal: operating margin was 3.7%, well above the goal of 2.9%.

“Some of this can be attributed to one-time occurrences, such as the acquisition of Jewish Hospital & St. Mary’s HealthCare in Louisville, which increased CHI’s revenue stream,” said Dean Swindle, CHI's executive vice president of business services and chief financial officer. “Still, with good expense management, we were able to do better than expected.”

CHI needs an operating margin of at least 3% to meets its growth and MBO capital needs. Continued expense management and increases in operational and clinical efficiency are important to maintain a healthy operating margin so that CHI can continue to serve the people and communities that depend on the organization for care.

Operating margin increased even though the cost of community benefit across CHI increased 16.8%, to $715 million. Community benefit includes the cost of services provided to people who are poor and to meet community health needs: examples include charity care, free clinics and donations to community service organizations.

A notable exclusion from community benefit is the cost of services provided to Medicaid patients in excess of the amount reimbursed by Medicare. Per guidance issued by the Catholic Health Association, CHI does not include these costs in the calculation of community benefit. During 2012, the unpaid cost of Medicare across CHI was nearly $400 million – if added to the cost of community benefit, it would bring the total to more than $1.1 billion for the fiscal year.

Finally, CHI is now a $15 billion health system. CHI’s assets at the end of June 2012 totaled $15 billion, an increase of 8.1% from 2011.

Swindle said CHI had borrowed money three times in the past 12 months.

“CHI borrows money to make acquisitions, but then we add the revenue streams of those acquisitions to CHI, which help pay back our debts,” he said. “CHI also borrows to refinance debt. For example, after we acquired Jewish Hospital & St. Mary’s HealthCare, we borrowed money to pay off that organization’s debt. We did this because CHI could borrow the money at a much lower interest rate: paying back the debt at the lower interest rate will save nearly $10 million dollars. And, CHI still has one of the strongest debt ratings in health care.”

A complete financial report and detailed balance sheet are included in CHI’s interactive annual report for 2012.