Advocate 'actively exploring' acquisitions, affiliations after 42% drop in operating income

Second quarter financials for Downers Grove, Illinois-based Advocate Health Care showed a 41.8 percent year-over-year drop in operating income, which fell to $47.4 million.

The system, which includes 539 total facilities and was listed among the 25 largest integrated health systems in the U.S., blamed the decline on several factors. One was the integration of its physician arm, Advocate Physician Partners, into its financial statement, which eliminated $88.4 million in revenue associated with members of the arm’s capitated contracts cared for at Advocate facilities. Higher operating costs resulted in a lower operating margin of 3.1 percent. For the six-month period ending June 30, admission and outpatient visits declined by 0.5 percent and 0.2 percent, respectively, compared to the same time frame in 2016.

Advocate had already start tightening its belt after an alarming first quarter report, but said positive effects from the $200 million in planned cuts wouldn’t be reflected in their second quarter financials.

“Management believes a transformation in the delivery of healthcare will be required to solve this situation that will take months or longer to complete,” the report said. To begin addressing, Management put in place certain initial actions including a hiring freeze on non‐clinical positions and a freeze on certain capital spending. A thorough review of all programs and services, as well as the organizational structure was undertaken.”

Overall revenue was up 7.6 percent to $1.52 billion. Expenses grew at a faster rate, however, hitting $1.48 billion in the second quarter, a 10.6 percent jump over last year. The increase was “partially offset by focused expense management,” according to the report, but increased pharmaceutical costs remain the biggest issue.

The report contained no leftover financial consequences from Advocate’s failed merger with NorthShore University Health System, but it did say the company is looking out for other potential deals.

“Health care is currently a very dynamic market. Advocate is actively exploring new opportunities for affiliations with, and acquisitions of, other institutions and organizations. Advocate will continue to consider any potential affiliations that may be in the best interest of Advocate,” the report said.