U. of Ariz. ac­qui­si­tion, ACO hurt Ban­ner’s bot­tom line

Modern Healthcare - - REGIONAL NEWS - —Bob Her­man

Ban­ner Health’s op­er­at­ing sur­plus dropped by more than half in 2015 as the Phoenix-based sys­tem strug­gled to in­te­grate its Univer­sity of Ari­zona Health Net­work ac­qui­si­tion.

Ban­ner also posted an un­ex­pect­edly large loss from its ac­count­able care or­ga­ni­za­tion, Ban­ner Health Net­work, which had pre­vi­ously been per­form­ing well. Ban­ner Health Net­work is one of nine Medi­care Pi­o­neer ACOs still stand­ing, and the ACO also con­tracts with sev­eral pri­vate pay­ers and large em­ploy­ers to re­ceive monthly, cap­i­tated pay­ments for each mem­ber.

Ban­ner posted an op­er­at­ing sur­plus of $128.4 mil­lion on nearly $7 bil­lion in rev­enue last year, for a 1.8% mar­gin, com­pared with an op­er­at­ing sur­plus of $263.3 mil­lion in 2014 on rev­enue of $5.4 bil­lion, a 4.9% mar­gin.

Ex­ec­u­tives ex­pected the de­cline in day-to-day oper­a­tions be­cause UAHN, a ma­jor aca­demic med­i­cal cen­ter, was strug­gling fi­nan­cially. In the first sev­eral months of 2015, UAHN had a neg­a­tive 1.8% op­er­at­ing mar­gin. Aca­demic hos­pi­tals have costly foot­prints that stem from their med­i­cal train­ing and re­search. Ban­ner also took over sev­eral UAHN health plans, a func­tion it pre­vi­ously did not own. The sys­tem ex­pects to strip out $100 mil­lion of UAHN over­head by 2018.

Mean­while, the sys­tem’s ACO lost $49.3 mil­lion in 2015. Ex­ec­u­tives said in ac­com­pa­ny­ing doc­u­ments the deficit was a “sig­nif­i­cant per­for­mance de­cline from the $7.2 mil­lion op­er­at­ing in­come in 2014.”

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