UnityPoint Health—St. Luke’s Hospital sees rapid development

UnityPoint Health-St. Luke's Hospital does not get an individual credit rating, as it is lumped in with the entire UnityPoint Health system.

In April 2014, Moody's revised its Aa3 rating for the entire system to a negative outlook, partially due to its rapid growth.

'As a system, we have diversification of our revenue base. If one of our regions has a bad year financially, it isn't like to have a big impact on the system's credit rating,” said Mark Johnson, West Des Moines-based chief financial officer and senior vice president of UnityPoint Health, which has 15 hospitals throughout Iowa and Illinois and just expanded in Wisconsin.

'This may not be the case for a stand-alone facility that gets into financial difficulties.”

Moody's commented that it was concerned over the January acquisition of Madison, Wis.-based Meriter Health Services and its Physicians Plus Insurance Corp., which it downgraded last September.

But Johnson said that Physicians Plus, which is now a direct subsidiary of UnityPoint Health, has a plan to improve its financial performance.

As a whole, the system has $934 million of outstanding debt. Johnson said the amount of debt is appropriate for an organization the size of UnityPoint Health, which has an annual revenue base of about $3.6 billion and total assets of about $4.8 billion.

'Having some debt on the balance sheet is not a bad thing,” he said. 'Our debt has regular repayment schedules and we have more than sufficient cash flow to make those payments.”

Becker's Healthcare, which provides information of the health care industry, including Becker's Hospital Review, listed UnityPoint Health among its 21 hospitals and health system with strong finances. It said that in 2013 UnityPoint posted an operating margin of 9.9 percent.

UnityPoint's access to capital and its solid credit rating will come in handy when St. Luke's begins to build a 10,000-square-foot radiation therapy facility that the hospital hopes to have open in late 2015.

St. Luke's revenues also are growing faster than the industry average - increasing 6.7 percent between 2011 and 2012, according to its 990 tax forms. The hospital reported revenues of $375 million in 2012, up from $352 million in 2011.

One large area of growth is the hospital's pharmacy services. Tax documents show that pharmacy revenue grew 11 percent, from $79 million to $87 million, between 2010 and 2012.

Aunan said two factors have contributed to this growth - advances in health care mean more patients are being prescribed better drugs to treat concerns such as cancer and heart disease, as well as the fact that St. Luke's serves as the mail-order pharmacy for UnityPoint, which means the hospital has a higher volume than most.

On the other hand, its expenses also grew faster than the industry average, rising 7.8 percent, from $332 million in 2011 to $358 million in 2012.

As with Mercy, St. Luke's is seeing higher outpatient volumes than inpatient volumes. This has a negative effect on expenses because, while the surgery costs less, the surgical supplies don't, said Milt Aunan, chief financial officer of St. Luke's Hospital.

And also like Mercy, he said the hospital had to invest heavily in its electronic medical record system.

Likewise, to be able to achieve high quality of care and patient satisfaction, a hospital must invest in top doctors and equipment, Aunan said.

'And to be able to do that, we have to operate profitably,” he said.

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