Trinity Health logs $298M operating loss along with merger-fueled revenue growth in H1 2023

Trinity Health reported a six-month operating loss of $298 million, a stark reversal of the prior year’s $295.8 million operating gain the nonprofit largely attributed to expenses that grew faster than revenues.

Trinity Health's fiscal year 2023 began July 1, 2022. Recently published financial documents for the first half of the year, ending Dec. 31, 2022, touted a $235.1 (2.3%) year-over-year increase in operating revenue to a total of $10.5 billion.

That increase was driven by $535.8 million in new operating revenue from the full acquisition of Iowa’s MercyOne and Michigan’s North Ottawa Community Health System. Without those, Trinity’s revenue would have declined by $300.7 million (-2.9%) year over year, in part due to a $129.3 million reduction in federal pandemic relief funds.

Same-facility net patient service revenue was down 0.8%, which Trinity said was due to a combination of reduced volumes, staffing challenges, payer mix shift and case mix. The patient volumes component, however, started to see positive momentum during the most recent quarter.

“Volumes are stabilizing to a new normal with inpatient volumes that may not return to pre-pandemic levels,” the system’s management wrote in the filing. “The majority of the corporation’s revenue is comprised of outpatient and other non-patient revenue, and the corporation continues to diversify its business segments as shifts from inpatient care to ambulatory, home health, [Program of All-inclusive Care for the Elderly], urgent care, specialty pharmacy and digital telehealth care continue across the industry.”

Operating expenses were up $674.1 million (6.7%) year over year with the health system's acquisitions comprising $582.3 million (86.4%) of the increase, Trinity said. Excluding those deals showed a $91.8 million (0.9%) year-over-year increase in expenses.

Still, the system wrote in its earnings that it’s been able to trim down its total operating costs per case mix equivalent discharge compared to this year’s first quarter.

It also highlighted the first half of 2023’s $82.5 million (31.1%) year-over-year decrease in contract labor costs due to “strong cost controls over contract labor and other operational spending as colleague investment and utilization of its FirstChoice internal staffing agency promotes labor stabilization,” management wrote.

The $298 million operating loss for the most recent period included dividend income and restructuring costs that netted a $43.3 million loss, whereas the first-half 2022 tally included a $127.2 million gain on the system’s sale of Gateway Health Plan. Removing these other items yielded a $270.3 million operating loss in the first half of 2023 and $168.6 million in operating income in the first half of 2022.

Trinity also acknowledged that its operations were impacted by last year’s cyberattack on CommonSpirit Health, which extended to the MercyOne assets it had purchased from the fellow Catholic health provider.

Nonoperating income during the first half of fiscal year 2023 landed at $264.6 million, down from $627.2 million during the year prior. Trinity attributed the decline to reduced investment returns—1.6% in the first half of 2023 versus 3.6% in the first half of 2022.

The bottom line was a $70.5 million net loss (net of noncontrolling interests) for the first six months of fiscal year 2023. Trinity had seen an $878.1 million net gain during the previous year’s first half.

Trinity Health is coming off of a $148.5 million operating loss and $1.4 billion deficit for the entirety of its most recently closed fiscal year. Total operating revenue for that year was $19.8 billion.

More recently, the organization closed a deal that saw Genesis Health System’s six medical centers and 100 other care sites join MercyOne.