The health care industry is changing rapidly with health care reform at the state and national level, new insurance products resulting in higher out-of-pocket costs to the consumer, reduced payment rates to providers, and new models of care requiring significant investments in technology, facilities and skilled providers. As a result of reduced volumes, revenues and margins, the industry has seen significant increases in mergers and partnerships as organizations position themselves for the future. These factors combined have resulted in Moody’s Investor Service issuing a negative outlook for the not-for-profit hospital sector.
Despite the challenges, Baystate Health, Inc. and subsidiaries’ (Baystate Health) financial performance remains stable with operating margins in the 2.7 to 3.4 percent range over the past four years and ratings remaining at previous levels, A+ for S&P, A+ for Fitch, and A2 for Moody’s. Baystate Health reported income from operations of $50.2 million (2.9 percent operating margin) for the year ending September 30, 2013 as compared to operating income of $46.7 million (2.8 percent operating margin) in fiscal 2012. The change in the operating margin from the prior year was a result of improved operating performance at Baystate Medical Center (BMC).
Total operating revenues increased by $82.9 million, or 5.1 percent, in 2013 compared to 2012 due to a significant increase in Health New England (HNE) premium revenue and growth in patient revenue at BMC. HNE premium revenue grew primarily as a result of Medicaid HMO enrollment as well as growth in Medicare Advantage enrollment.
Total operating expenses increased by $79.3 million or 5 percent, in 2013 compared to 2012 due to higher costs to deliver patient care services and increased HNE medical claims. The increase in patient care costs resulted primarily from higher volumes at BMC.
Our commitment to caring for the uninsured and underinsured members of our community continues as Baystate Health often absorbs the cost of that care. In 2013, Baystate Health provided unreimbursed care to our patients at a cost of more than $106 million.
Baystate Health relies on the operating margin to invest in technology, equipment, facilities, and programs that improve care and benefit the people in our communities. This year we invested almost $64 million in our annual capital budget for clinical programs, facilities, and information systems. An additional $45 million was invested in the new Emergency Department at BMC which opened in December 2012.
Baystate Health continues to perform well by anticipating and acting on factors which negatively impact patient revenues, including reductions in Medicare and Medicaid payments and proposed cuts in federal spending. Ongoing strategies such as; revenue diversification, exploring partnership opportunities, investments in quality initiatives, and market expansion of HNE help ensure we are fiscally sound and prepared for future financial challenges.
Our independent public accountants, Deloitte & Touche LLP, have completed an audit of Baystate Health’s financial statements for the fiscal year ended 2013 and issued an unqualified opinion.