The health system is one of many nonprofits seeing strong gains coming out of the first quarter.
Advocate Health reported a first-quarter operating income of $103.7 million, according to financial reports released last month. This is compared to the system’s earnings of $10.4 million during the same period in 2023.
The health system’s first quarter revenue increased 7.8% year over year to $8.1 billion, but expenses closely followed, growing 6.6% to $8 billion. The 67-hospital system saw labor costs increase 6.7% to $4.7 billion, while supply and drug costs increased 12.5% to $1.7 billion.
After the addition of nonoperating items like investment returns, the system saw a net income of $682.6 million after the first quarter, up from $578.7 million from its first quarter in 2023.
The total sum for unrestricted cash and investments was $21.8 billion and long-term debt was $7.4 billion.
Where the Nonprofit Found Strength
Major nonprofit health systems have seen consistent higher volumes and revenues, specifically for second quarter results, but not all have fared so well. For instance, Providence (the sixth largest nonprofit) reported a $202 million operating loss (-2.8% operating margin) in its second quarter last year.
In 2022, about 73% of nonprofit hospitals and health systems had at least “strong” days of cash on hand, but about one in ten (9%) had “vulnerable” or “highly vulnerable” levels, according to an S&P report. Advocate Health brought in about $27 billion in annual revenues during 2022, according to the system’s financial reports.
According to a Kaiser Family Foundation report, “the value of financial investments among nonprofit hospitals and health systems have likely stabilized or increased with 2023 market improvements.”
Based on financial reports it’s likely that pandemic relief funds lent a hand in these non-recurring operating revenues. Totals jumped from $13 million in 2019 to $29 billion among nonprofit health systems, and fell down to $8 billion in 2022, according to KFF news.
The improvement of operating margins in 2023 is perhaps due to decreases in labor expenses and increases in volume and reimbursement rates, but even so, these margins tend to remain below pre-pandemic levels.
Advocate Health, born out of the partnership of Advocate Aurora Health and Atrium Health, saw its earnings soar upwards nearly a billion halfway through its first year with an operating margin of 0.6% and a whooping $938.4 million from investments.
Marie DeFreitas is the finance editor for HealthLeaders.
KEY TAKEAWAYS
Advocate Health saw $103.7 million in operating income in its first quarter of 2024, ten times more than what the system saw in the first quarter of 2023.
Nonprofit operating margins, in general, have increased due to several factors such as decreased labor expenses. But while Advocate’s labor costs went up, the system made up for it elsewhere.
A study found that about 73% of nonprofit hospitals and health systems had at least “strong” days of cash on hand in 2022.