Levine: Still room for growth as Ballad's margins show improvement

David Floyd • Nov 12, 2019 at 10:00 PM

Although recent numbers indicate Ballad Health’s revenues are continuing to maintain an overall lead on expenditures, Executive Chairman, President and CEO Alan Levine believes the system’s operating margin still has room for growth.

“Our performance has definitely improved, and we’re very grateful for that, but there’s still work to be done to get us to a level that’s similar to other stable health systems,” he said.

In a press release issued Monday, the system highlighted a list of accomplishments in the first quarter of its 2020 fiscal year, including $27 million of investments in capital projects, the recertification of the Johnson City Medical Center as a comprehensive stroke center and savings accomplished through its accountable care organization, AnewCare Collaborative. Ballad Health’s fiscal years run from July 1 to June 30.

The system also pointed out that its operating margin has improved to 0.8% in the first quarter of the 2020 fiscal year compared to a slight loss of 0.04% in the first quarter of the 2019 fiscal year. Revenues for the most recent quarter increased by 4.5% and expenses increased 3.7%.

The system has also seen emergency department visits decrease by 5,000 this quarter and urgent care visits increase by 4,000 compared to the same quarter last year, which reflects an effort from the system to use lower cost settings for patients who don’t need high-level care.

In order to operate on a stable financial level, Levine said hospital systems should function above a 4% operating margin. A system’s success in growing beyond that point, Levine said, can depend on where they’re located. Hospital systems based in cities like Charlotte, Asheville, Nashville or Atlanta that are experiencing population growth and have a good payer mix are more likely to hit that desired margin.

Hospitals in rural regions with slower population growth, Levine said, have a harder time reaching that threshold. A significant percentage of Ballad Health’s payer mix also comes from Medicare and Medicaid patients.

“We have a very disproportionately high percentage of our payer mix that’s government where we don’t negotiate,” he said. “We’re told what we’re going to get paid.”

Only roughly 20% of the system’s payer mix is composed of patients with commercial insurance.

Levine said the system ultimately ended its last year with just under a 2% operating margin, which is the best margin he’s seen in his roughly six years at local hospital systems.

Before the merger, Wellmont Health System and Mountain States Health Alliance were both struggling financially, Levine said, with both systems seeing their margins dip into negative territory.

“We’ve now two years in a row seen improvement,” he said, “so the trend is definitely where we want it to be. Our goal is to get to a 3-4% operating margin over time.”

Levine said the first quarter of the fiscal year, which encompasses July through September, is usually the system’s lowest-performing period. Establishing a nearly 1% operating margin in the first quarter, Levine said, sets a solid foundation for Ballad Health as the year progresses. The third quarter is typically the strongest period of the year, he said.

Levine said Ballad Health has also reduced readmissions to the lowest point they’ve ever been and has achieved quality scores for its accountable care organization that exceed 90%.

The system said the Centers for Medicare and Medicaid Services has identified its accountable care organization, a group of health care providers that deliver coordinated care for Medicare patients, as one of just 18 in the nation that have achieved savings in each of the six years of the federal program. Levine said there are more than 500 accountable care organizations nationwide. He said the system has saved the federal government over $50 million by reducing low-acuity and non-urgent admissions.

“I’m really, really proud of the work our doctors and clinical team members are doing in terms of better management of our patients,” Levine said, “and it’s manifesting itself in good results for the system.”

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