New Hyde Park, N.Y.-based Northwell Health saw revenue increase in the first quarter of fiscal year 2017, but the 18-hospital system ended the period with an operating loss.
Northwell saw revenue increase by $199.6 million, or 8.4 percent, year over year in the first quarter of fiscal year 2017. The system said the revenue growth was attributable to several factors, including increased payment rates, higher patient volume, continued revenue cycle initiatives and increased premium revenue associated with the two health insurance companies it owns, according to recently released bondholder documents.
Rising expenses offset the system's revenue growth. Northwell's operating expenses for the first quarter of fiscal year 2017 were up $265.2 million, or 11.3 percent, compared to the same period of the year prior.
Northwell ended the first quarter of fiscal year 2017 with an operating loss of $36.2 million, compared to an operating gain of $29.4 million in the same quarter of fiscal year 2016. The loss was largely attributable to a $22.7 million loss by its health insurance company CareConnect and a $3.8 million loss by its other commercial plan, North Shore-LIJ Health Plan. An increase in inpatient denial activity and a shift in payer mix also negatively affected the system's revenue growth in the first quarter of fiscal year 2017.
CareConnect took a hit from the ACA's risk adjustment program, which is intended to reinforce market rules that prohibit risk selection by insurers. Under the program, funds are transferred from plans with lower-risk enrollees to plans with higher-risk enrollees. CareConnect's risk adjustment liability was $29.4 million in the first quarter of fiscal year 2017, compared to $8 million in the same period of the year prior.
Despite the challenges CareConnect is facing, Northwell officials said they believe operating insurance companies "is an effective strategy to manage population health." However, "management would reconsider continued participation in specific insurance products, if their long term financial sustainability cannot be reasonably assured," wrote Northwell in its recent financial disclosure.
After factoring in substantial investment gains, Northwell ended the first quarter of fiscal year 2017 with net income of $80.3 million, up from $39.6 million in the same period of the year prior.
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