In 'daunting' health care environment, Erlanger ekes out positive net income

Staff Photo by Matt Hamilton / Erlanger Hospital on Tuesday, Dec. 15, 2020.
Staff Photo by Matt Hamilton / Erlanger Hospital on Tuesday, Dec. 15, 2020.

Erlanger Health System managed to finish the first quarter of the new fiscal year with $8.3 million net income from operations despite treating a record 862 COVID-19 inpatients with no provider relief funds from the federal government, officials said Monday.

By comparison, Erlanger treated 334 inpatients during the first quarter of last year, according to Erlanger CFO Lynn DeJaco, who shared the first-quarter results during a hospital board of trustees budget and finance committee meeting Monday.

Erlanger's first-quarter results continue a trend of consistent financial gains that began after CEO Dr. William Jackson implemented a "financial stewardship" plan prior to the pandemic, which focused on controlling expenses, managing patient volumes and identifying opportunities to increase revenue.

Erlanger brought in more than $10.3 million less operating revenue than budgeted as a result of the summer COVID-19 surge, which forced the health system to scale back surgeries and other procedures but was still able to finish the quarter in a stable position by managing expenses to be $10.4 million under budget.

Audited financial statements from the last fiscal year, which ended June 30 and were also released Monday, show the health system finished the 2020-2021 fiscal year with a $38.5 million net income from operations compared to a budgeted operating income of $13.3 million and a prior year net income of about $35.3 million.

Last year, Erlanger received $24.8 million in federal provider relief funds, which is less than half of the stimulus funds the health system got in fiscal year 2019-2020, during which the pandemic began.

"The past two years have been daunting to every health care organization, but Erlanger understood the importance of remaining fiscally responsible and financially secure in order to continue to serve our region," DeJaco said in a news release sent after the meeting. "This team's dedication has withstood the many challenges of multiple COVID-19 surges, including supply chain issues and fatigue, to compassionately care for their patients."

Erlanger's revenue in the 2020-2021 fiscal year returned to near pre-pandemic levels, bringing in $1.04 billion in net patient revenue.

During Monday's meeting, DeJaco cited a recent report from the health care consulting group Kaufman Hall that projected more than a third of hospitals could end 2021 with negative margins due to ongoing COVID-19 challenges.

Hospitals across the nation continue to treat sicker patients who must stay longer for care. Although those cases bring in revenue, those gains are offset by higher costs of treating patients with more severe conditions.

In addition, the costs of labor, drugs and other purchased services continue to increase.

COVID-19 has cost Erlanger $49.84 million since the start of the pandemic, according to DeJaco, which is why health systems received federal relief funds.

"That gave us that revenue to be able to continue to serve our patients, even though we're experiencing such challenging times," she said, adding that Erlanger has managed not to become one of those hospitals struggling financially thanks to its management plan.

Erlanger has not received any provider relief funds so far this year.

Matt Stuart, an independent auditor from the firm Pershing, Yoakley and Associates, noted that Erlanger's accounts receivable had increased by about 7.5%, but that was to be expected with the increase in patients over the previous year when hospitals dramatically scaled back on elective procedures at the start of the pandemic.

Stuart recommended that Erlanger management continue to review those accounts, which is a common industry practice.

"As you go into the current year, look and see what was actually collected on those accounts to see how well the accounts receivable balance model is working," he said.

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