Trinity Health weathers $565M net loss, -2.9% operating margin to start its 2023 fiscal year

Revenue growth from Trinity Health’s recent MercyOne acquisition wasn’t enough to outpace volume struggles and rising expenses during the Catholic health giant’s first fiscal quarter of 2023.

Thursday, the 88-hospital system reported a $146.3 million operating loss (-2.9% operating margin) and a $565 million net loss for the quarter ended Sept. 30, 2022. The organization had notched a $106.3 million operating gain and a $378.8 million net profit at this time last year.

Revenue grew 0.7% year over year to $5 billion during the quarter, though that tally includes $126.2 million in new operating revenue resulting from the MercyOne buyout that closed Sept. 1. Without that, Trinity would have seen a 1.8% decline in revenue from the prior year’s first quarter.

Same-facility net patient service revenue dipped 0.3% year over year “primarily due to same-facility decreased volume and unfavorable shift in payer mix,” the system wrote in its filing. Other same-facility revenues in the opening three months declined by $77 million due to a combination of reduced gain share revenue, 340B program pharmacy revenue and equity earnings from unconsolidated affiliates.

Trinity saw year-over-year volume declines across most same-facility volume metrics, including discharges, ER visits, patient days, observation cases and outpatient visits. While some of those numbers were impacted by staffing shortages that constrained capacity, Trinity said it’s also contending with a bigger picture shift in demand for care services.

“Volumes are stabilizing to a new normal and inpatient volumes may not return to pre-pandemic levels,” the system wrote. “The majority of the corporation’s revenue is comprised of outpatient and other non-patient revenue, and we continue to diversify our business segments as shifts from inpatient care to ambulatory, home health and digital telehealth care continue across the industry.”

Trinity’s total operating expenses increased 5.9% year over year to $5.2 billion, or 3.2% to $5 billion when excluding the MercyOne acquisition.

This included a 5.3% increase in the system’s salary, wage and employee benefit costs (minus MercyOne) despite a 1.4% decrease in full-time equivalents. However, the organization called out a $1 million decline in contract labor costs since last year that it attributed to increased use of its internal staffing agency as well as expense reductions across supplies, purchased services and depreciation and amortization.

The quarter also included a $128.7 million gain on Trinity’s sale of a 50% equity interest in Gateway Health Plan. On the nonoperating side, $369.5 million in investment losses dragged the system’s total nonoperating items to a $404.6 million loss.

Trinity’s total assets dropped 1.1% since the early summer to $30.8 billion, driven largely by a $1.27 million reduction in unrestricted cash and investments from the MercyOne purchase, investment losses and Medicare cash advance repayments. The system now has 211 days of cash on hand.

Trinity’s $146 million operating loss puts it in the lower tier of major nonprofit health systems’ recent performances—just behind Bon Secours Mercy Health’s $141 million loss but ahead of Providence’s $164 million loss. The quarter also had a handful of strong earnings as Baylor Scott & White, Sutter Health and Mayo Clinic led the pack with operating gains of $257 million, $244 million and $157 million, respectively.