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