December 2013

Financial Report for Fiscal Year 2013

Financial Report for Fiscal Year 2013
Throughout the health care industry, as care delivery and payment models are changing, patient volumes and revenues are on a downward trend. “We have predicted and prepared for these changes,” said Kevin Lofton, president and chief executive officer of CHI. “CHI is still able to grow, to care for patients and communities, and to maintain a strong balance sheet.”

CHI had a very slim operating margin for the 2013 fiscal year, which ended June 30, 2013. However, With more than $19 billion in assets and ample cash on hand, CHI remains strong and continues to invest in building the capabilities that will be vital to success in a radically different world of health care.Investments in the Future

Investments in the Future
Those investments include the acquisition of St. Luke’s Health System, Houston, TX. Franciscan Health System, Tacoma, WA, expanded its regional presence with Highline Medical Center, Burien, and Harrison Medical Center, Bremerton. KentuckyOne Health created a joint operating agreement with the University of Louisville Hospital/James Graham Brown Cancer Center. And, CHI became the sole sponsor of Alegent Creighton Health, Omaha, NE. These additions to the CHI family helped increase total system assets by 28.6% percent, to $19.3 billion, from fiscal year 2012.

Bond Issue
To provide the capital needed to support its growth, CHI recently issued $1.7 billion in bonds. This will also help fund CHI’s IT infrastructure and new ways of delivering care, such as virtual health services and clinically integrated networks.

The bond issue increased CHI’s overall debt, and credit rating agencies revised CHI's long-term credit ratings accordingly. CHI now has an A+ with a stable outlook from Standard & Poor’s and Fitch Ratings; and an A1 with a negative outlook from Moody's. Still, the agencies commented favorably on CHI's prospects for 2014.

“The funds raised by the bond issue will help us restructure CHI’s debt to our advantage,” said Lofton. “When we acquire facilities and systems, we also acquire their debts. The bond issue helps us restructure payments on debt so that we actually save millions on interest.”

Community Benefit
CHI also continued its commitment to providing charity care and community benefit at a cost of $762 million, an 11.7% increase from 2012. Community benefit includes the cost of supplies and labor related to free clinics, donations and other services provided to the poor and to meet community needs, as well as the cost of services in excess of reimbursement for Medicaid patients.

As the 2014 fiscal year continues, CHI has recommitted to expense management. Through a Financial Improvement Plan, CHI is taking deliberate, swift action to address weaker-than-expected operating performance in the first three months of fiscal year 2014. The national office is implementing immediate expense reductions to supplement the rigorous plans already being implemented in CHI's markets.

“Our local organizations have rigorous cost saving programs, and the national office has a new initiative to reduce expenses 10%,” said Lofton. “I appreciate everyone’s efforts to rein in expenses and work more efficiently as we serve patients and communities with the highest quality of care.”