Trinity Health’s patient volumes “are returning but have yet to return to pre-pandemic levels” as COVID-19 surges, high labor costs and investment losses brought the Catholic health system’s nine-month net income down by more than $3 billion from last year, according to earnings reported Friday evening.
From July 1, 2021, to March 31, 2022, (the first nine months of Trinity’s fiscal year), the health system reported a 0.1% operating margin and $11 million operating income.
These numbers include $138.5 million in Provider Relief Fund (PRF) grant revenue but exclude “other items”—such as a $128.7 million gain from the sale of Trinity’s 50% stake in Gateway Health Plan—that would have brought the nine-month operating income to about $128.7 million.
Taking into account the 0.4% operating margin and $38 million operating income Trinity reported for the first six months of its fiscal year, the numbers suggest the system’s operations dipped slightly into the red during the worst of the omicron surge, a period in which several of its larger contemporaries either ran flat or saw hundreds of millions in operational deficits.
The most recent quarter also cements Trinity squarely behind its nine-month performance from the prior year, when it had reported a 4.6% operating margin and $694.6 million in operating income.
“Downward pressure on margins was caused by expense growth outpacing revenue growth, primarily due to continued increases in pandemic-related labor costs and a reduction in PRF grant funding,” the system wrote in its report. Trinity Health had received $555.6 million in PRF grant revenue during the first nine months of 2021.
Despite receiving more than $400 million less in PRF funds, Trinity reported a 2.9% ($422.6 million) year-over-year increase in total operating revenue for the first three quarters of 2022.
This was the result of a 3.3% increase in net patient revenue led by same-facility payment rates and increased volume. For the latter, Trinity noted year-over-year increases in third-quarter COVID-19 discharges (23.6%) and emergency room visits (5.6%) “partially offset” by a year-over-year decrease in case mix adjusted equivalent discharges (-1.9%).
The larger issue was a 4.8% year-over-year increase in total operating expenses for the nine-month period. Contributing here was $395.1 million in additional salary and wage expenses (5.8% increase in pay rates, 0.6% increase in full-time equivalents), $294.6 million in additional contract labor spending (154.2% increase) and $71.6 million in additional supply expenses (2.8% increase).
The nonprofit didn’t see any help from its nonoperating items, notching $40.3 million in nine-month nonoperating losses compared to 2021’s $2.6 billion gain. This was primarily due to 0.8% investment losses during the year to date compared to a 19.7% gain from the year before.
As such, Trinity ended its third fiscal quarter with a net income of $43 million (0.3% net margin), far below its $3.2 billion (18.1% net margin) during the same period in 2021.
The system also noted that its “balance sheet and liquidity metrics remain strong despite stressors from the ongoing pandemic and recent investment market volatility,” with unrestricted cash and investments of $12.5 billion (237 days of cash on hand).
Trinity Health spans 88 acute care hospitals and hundreds of other care locations in 25 states and purports to have the second-largest Medicare PACE (Program of All-inclusive Care for the Elderly) program in the country. It provided services to 1.4 million people and reported a community benefit and charity of $1.2 billion in 2021.
Last month, Trinity announced plans to buy out CommonSpirit Health’s 50% stake in Iowa-based MercyOne, a regional health system treating 3.3 million patients annually it had jointly operated with the fellow Catholic health giant since its founding in 1998. Should the deal go through as expected in summer 2022, MercyOne’s 16 medical centers and other affiliates and sites generating over $3 billion in combined revenue would be solely owned by Trinity.