OHSU’s Revenues In Just-Finished Fiscal Year Hit A Record

In 2017-18, the university enjoyed brisk growth in outpatient and emergency department visits and in Medicare and Medicaid patients.

An aging population, increased federal spending on health care for the poor, and a strongly growing regional economy all continue to work to the advantage of Oregon Health & Science University.

Operating revenues for the fiscal year that ended June 30 hit a record $2.96 billion, yielding a $137 million profit, also a record, according to unaudited numbers the institution released to its board of directors last week.

Compare that to 2010, when the recession was ending: Operating revenues stood at $1.8 billion with profits at $68 million.

The strong numbers for the just-ended fiscal year reflect brisk growth in outpatient and emergency department visits, and in Medicare and Medicaid patients. Inpatient admissions were down, however.

The latest profit report bodes well for the institution in the new fiscal year, in which it anticipates revenues will hit $3.1 billion, generating a profit of $115 million. The board in June approved the budget for the fiscal year starting July 1.

OHSU’s chief financial officer, Lawrence Furnstahl, said the institution’s long-range strategy requires a continued increase in revenues in order to eke out the annual profit needed to cover continued investment in research, facilities and teaching.

“Fundamentally, it’s about investment,” he said in an interview with The Lund Report. Annual profits typically running $100 million to $115 million give the institution the extra cash to continue to grow, he said.

OHSU, with more than 16,000 employees, has an ambitious facilities construction and remodeling plan that includes two new buildings now under construction that are scheduled to be completed early next year: the Center for Health & Healing Building 2 and the Rood Family Pavilion.

OHSU faces a host of challenges, including payments into the Oregon Public Employees Retirement Fund, possible scale-backs of Medicaid under the federal Affordable Care Act and a drop in federal funds for health research, Furnstahl told the board in June.

Plus, “We’re in the second-longest (economic) expansion since the Civil War and how long that will last is uncertain,” he said. “So our objective (for the 2018-19 fiscal year) is to leverage all the upside potential as much as we can.”

By planning and cost control, the institution has grown steadily, even during the recession in the late 2000s, Furnstahl said. OHSU’s net worth, the value of all its facilities, cash and other assets, minus liabilities, has increased every year since 2006, he said.

Seventy percent of OHSU’s revenues come from insurance payments for patient care. Tuition, research, and gifts and grants pay for the rest.

Reflecting the expansion of federal health care spending under the Affordable Care Act, Medicaid payments are increasingly important to OHSU. The Oregon Health Plan, which insures low-income and disabled people, accounted for nearly 25 percent of patient revenues in OHSU’s fiscal year ended June 30, up from just over 20 percent six years ago, the hospital’s budget figures show.

Medicare payments to the hospital are also steadily increasing, hitting 33 percent last fiscal year, up from 30.5 percent six years earlier. That rise reflects the aging population, Furnstahl said.

Commercial insurance is waning as a slice of the revenues. Typically, it’s more lucrative for a hospital to focus on commercially insured patients, which can provide greater profits. “But our role is to care for all Oregonians when they need to be in an academic medical center,” Furnstahl said.

OHSU’s “same-service” medical revenues – that is, revenues OHSU receives from insurers to cover set types of procedures or services -- are rising about 2 percent a year, Furnstahl said. But the hospital’s cost of providing those services – personnel and other expenses – are rising about 3.5 percent a year, Furnstahl told the board.

That revenue-to-expense ratio would quickly wipe out any annual profit the hospital might hope to post.

So, OHSU must continue to crimp cost inflation by curbing operating expense growth, he said. The university is using a multipronged effort it calls Accelerate OHSU to curb the pace of increasing personnel, supplies and other operating expenses.

And the hospital said it must increase the volume of medical and other services it provides. The just-ended fiscal year was strong in that regard: Ambulatory visits were up 6.9 percent, to 955,986; day/observation patients were up 9 percent, to 40,378; and emergency visits were up 2.7 percent, to 48,461. Inpatient admissions were down 1.8 percent, to 29,213.

Since 2011, the institution’s operating profit margin has varied from a low of 3 percent in fiscal 2011 to a high of 4.7 percent in fiscal years 2016 and 2017. The rate for fiscal 2018 is expected to be 4.6 percent. The profit margin in the current budget year is forecast at 3.7 percent.

The construction and fundraising boom by the university has increased its net worth to $3.4 billion last year, up from $1.7 billion eight years earlier.

Furnstahl said he doesn’t see an end to OHSU’s steady growth and increase in market share. Over the past couple of decades, OHSU’s annual growth has averaged 9.5 percent, he said. He anticipates that slowing to 7 percent in coming years.

Reach Christian Wihtol at [email protected].