Becker's Hospital Review

22 CFO / FINANCE SSM Health's annual operating income drops 43% By Ayla Ellison S SM Health saw revenues rise last year, but the St. Louis-based health system ended 2017 with lower operating income than in 2016, according to bond- holder documents. SSM Health's revenues climbed 6.3 percent year over year to nearly $6.5 billion. The revenue growth was due in part to a 3.3 percent year-over-year increase in net patient services revenue. Higher expenses partially offset SSM Health's revenue growth in 2017. The health system's expenses climbed nearly 6.3 percent year over year to $6.48 billion. After factoring in about $9.3 million in nonrecurring items, SSM Health ended 2017 with operating income of $5.7 million, down 43 percent from $10 million in the year prior. SSM Health benefited from strong investment gains last year, and the system ended 2017 with net income of $243 million. That's compared to 2016, when the system reported net income of $99.4 million. n New accounting standard for hospital bad debt a mixed bag, says Fitch By Kelly Gooch A new accounting standard for hospitals reporting bad debt will have both negative and positive effects, according to a report from Fitch Rat- ings. "The new standard appears to be more robust and consistent about the col- lectability of patient accounts, and requires expanded disclosure about the methodology used to estimate collectability," said Megan Neuburger, manag- ing director at Fitch. "But difficulties in drawing comparisons between hospitals will persist, and continue to hamper accurate and detailed forecasting of the financial burden of uncompensated care." The new standard requires hospitals to record a good portion of what would previously be considered bad debt as a reduction of revenue, according to the report. Due to the new standard, Fitch said it anticipates hospitals to report "lower revenue before bad debt, lower bad debt expense and, all else equal, the same amount of revenue after bad debt." Although the agency said it believes the new standard will affect financial measures that are part of the income statement and balance sheet, such as operating revenue before bad debt expense and bad debt expense, it does not believe operating income or EBITDA will be materially different. Therefore, "determining compliance with debt agreement covenants calculated based on these figures will not be significantly influenced," according to Fitch. A number of for-profit hospital operators, including Brentwood, Tenn.-based LifePoint Health, Nashville, Tenn.-based HCA Healthcare and Dallas-based Ten- et Healthcare, were required to adopt the standard for reporting periods be- ginning after Dec. 15, 2017. n California AG orders 3 hospitals to pay millions to meet charity care requirements By Ayla Ellison C alifornia Attorney General Xavier Becerra has ordered Mission Com- munity Hospital in Panorama City, Calif.; Emanuel Medical Center in Turlock, Calif.; and University of Southern Califor- nia Verdugo Hills Hospital in Glendale, Calif., to pay local nonprofits millions of dollars to meet the state's charity care rules, according to California Healthline. To qualify for tax breaks, nonprofit hospi- tals are required by federal law to provide a certain amount of care for free or at a dis- counted cost to patients who are unable to pay for treatment. In California, state law allows the attorney general to set specific charity care requirements when a nonprofit hospital gets a new owner. Earlier in 2018, the three hospitals request- ed the attorney general reduce their charity care requirements. e hospitals argued a drop in California's uninsured population has reduced the need for charity care. Cal- ifornia's uninsured rate fell from 17 percent in 2013 to 6.8 percent in 2017. Mr. Becerra's office denied the hospitals' requests on April 13. As a result, Mission Community Hospital was ordered to pay about $1.7 million to at least one local nonprofit organization providing medical services for low-income and homeless res- idents for not meeting its fiscal year 2016 charity care requirement. Emanuel Medical Center and USC Verdugo Hills Hospital were ordered to donate $1.9 million and $1.7 million, respectively, to local nonprof- it medical services providers to cover their past-due charity care payments, according to the report. n

• Cover