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Kaleida Health, Catholic Health report contrasting 2015 finances

Last year was a year of contrasting performances for the region’s two main hospital systems, according to their 2015 financial filings.

Kaleida Health, the region’s largest hospital system, earned operating income of $23.2 million in 2015, after earning $15.2 million the year before, its first back-to-back years of profits after years of alternating income with losses recently.

Catholic Health System, however, reported $3.9 million in operating income last year, a sharp drop from the $32.7 million it reported earning the year before.

In Kaleida Health’s case, surging patient service revenue, driven by a rise in both inpatient cases and outpatient visits, offset an increase in spending on salaries and benefits, purchased services and supplies.

In the case of Catholic Health, patient discharges and outpatient visits both declined between 2014 and 2015, and patient revenue didn’t rise as much as anticipated. In both cases, the systems earned just millions of dollars on hundreds of millions of dollars, or more than a billion dollars, in revenue.

“This is a low-margin kind of business,” said Thomas H. Dennison, a professor in Syracuse University’s Maxwell School of Citizenship and Public Affairs who studies health care management and finance.

Dennison was a director in the health care consulting practice for PricewaterhouseCoopers who helped prepare a feasibility report on the formation of Kaleida Health.

Kaleida Health’s 2015 operating income is just a 1.6 percent margin on the $1.395 billion the system received in operating revenue last year, according to the 2015 financial statement for Kaleida Health released by system officials Monday.

The system’s operating income did rise 53 percent from the $15.2 million it reported in 2014. The system reported that inpatient cases rose 2.5 percent between 2014 and 2015, while outpatient visits rose 2 percent over the same period. The system made a concerted effort to cultivate relationships with primary care physicians to boost referrals for its specialists and its hospitals, said CEO Jody L. Lomeo.

“That was an all-hands-on-deck, to put our primary care strategy together,” Lomeo said in an interview Monday.

While operating expenses rose by 7.7 percent, or $98.2 million, to $1.37 billion, total operating revenues rose 8.2 percent, or $106.2 million, from 2014.

Prior to 2014, Kaleida Health was on a financial roller coaster. The system reported a $15.3 million operating loss in 2013, a $15.6 million profit in 2012, a $20 million loss in 2011 and an $18.8 million profit in 2010.

It was enough to prompt Kaleida Health’s board of directors to force out CEO James R. Kaskie at the end of January 2014 and to task his replacement, Lomeo, with turning around the system’s finances.

“I’m extremely proud of our ability to follow up a really good ’14 off a poor ’13. Nice turnaround in ’14. And then the real litmus test was can we keep the momentum going into ’15?” Lomeo said. “Kaleida suffered from the yo-yo years of good year, bad year, good year, bad year. And we wanted to be able to deliver a more consistent performance.”

The nonprofit Kaleida Health operates Buffalo General Medical Center, Women & Children’s Hospital, Millard Fillmore Suburban Hospital and DeGraff Memorial Hospital, as well as the Gates Vascular Institute, HighPointe on Michigan nursing home and the Visiting Nursing Association home care agency.

The system also is the region’s largest private employer with about 10,000 full- and part-time employees.

Catholic Health System reported operating income of $3.9 million last year, and net income of $5.6 million, according to the system’s preliminary financial statement filed with the Electronic Municipal Market Access website. That follows years of rising earnings going back a decade.

The preliminary filing covered Catholic Health System Inc. and its three primary hospitals – Mercy Hospital of Buffalo, Sisters of Charity Hospital and Kenmore Mercy Hospital. It does not include the system’s home care, long-term care and other subsidiaries.

Catholic Health spokesman Charles Hayes said officials would not comment on 2015 financial performance until the board of directors approved its audited financial statement.

The preliminary filing showed Catholic Health’s patient service revenue rose 2.1 percent, to $898.2 million. Total operating revenues, after taking into account bad debts and other revenues, rose by the same 2.1 percent to $895.6 million. Expenses were close to what system officials had budgeted for, according to the filing, but patient service revenue fell far short of the $925.5 million budgeted for 2015.

Catholic Health’s total medical and surgical discharges were down 3.5 percent between 2014 and 2015, and its outpatient visits fell 2.9 percent.

“The very worst thing you want to do is lose volume,” Syracuse University’s Dennison said.

However, reducing health care costs overall will require fewer admissions, said Lawrence Zielinski, executive in residence for health care administration in the University at Buffalo’s School of Management, and a former president of Kaleida Health’s Buffalo General and its Visiting Nursing Association. One-third of all health care expenses are for care delivered in a hospital, he said.

Zielinski said he’s not sure whether Kaleida Health’s efforts to boost patient revenue, including reaching outside its home base of Erie County, are going to be sustainable.

“I think that (maintaining) the increase in admissions is going to clearly be a challenge,” Zielinski said. “That means in order for them to grow, they’re going to have to take share from other providers.”