Novant Health Reports 2012 Financial Results

Novant Health, a not-for-profit healthcare system serving North Carolina and three surrounding states, today announced the results of its 2012 fiscal year, reporting a net income of $274 million in 2012.

The health system's net income, also referred to as excess of revenues over expenses, breaks down as follows:  an operating income of $185 million, investment income of $109 million, and other non-operating losses and expenses of $20 million.  In the prior fiscal year of 2011, the health system recorded a net income of $1 million, comprised of $20 million of operating income and $19 million in investment losses.

"Faced by the constant changes in the healthcare industry, our net income provides the foundation needed to invest in our ongoing commitment to providing excellent patient care," said Carl Armato, Novant Health's president and CEO. "As a not-for-profit organization, we utilize our income to invest in advancing technologies and medical innovations, as well as to expand access to services to meet the ongoing needs of patients and our communities."

Armato explained that in 2012, Novant significantly advanced its transition from paper to electronic health records, which has become a national priority.  When complete, the conversion will cost approximately $600 million.  By year-end, 60 percent of the 350 physician clinics that comprise the Novant Medical Group had transitioned to the new technology.  The remaining clinics will complete the changeover in the fall of this year.  One of the electronic health record's benefits includes an online "MyChart" function, where patients can request prescription renewals, schedule appointments, view lab results, receive reminders about important health checkups and communicate directly with their nurses and practitioners by email.  So far, 107,000 patients have created an online account using MyChart.  The transformation to electronic health records at Novant hospitals begins in late 2013 and will continue for the next several years.

"Our strong finances help fund key strategic initiatives like the electronic health record as well as other projects to meet growing demand for services," Armato commented.

Novant also continues to invest in expanding patient access. In June, 2012 the organization broke ground on a new hospital in Haymarket, Virginia to meet the growing needs of the Northern Virginia area, currently served by Novant's Prince William Hospital in nearby Manassas. The new hospital is scheduled to open in 2014.

Other major Novant expansion projects proceeded or culminated last year: construction of additional patient rooms at one of the busiest facilities in the state, Presbyterian Hospital Matthews in Matthews, NC; development of a major outpatient campus including free-standing emergency room in Clemmons, NC; completion of an inpatient geriatric psychiatry unit at Franklin Regional Medical Center in Louisburg, NC; and the opening of a major inpatient expansion of Presbyterian Hospital Huntersville in Huntersville, NC.

Novant's strong financial year in 2012 will help to continue financing a major portion of expansion projects as well as the transformation to a comprehensive electronic medical record.

Investment performance improved significantly in 2012 and reflected the strong performance throughout the stock market.  Additionally, Novant Health experienced increases in the number of patients utilizing its services.  The number of patients requiring hospitalization rose 2 percent while emergency room visits increased 4.5 percent in 2012.

Diagnostic imaging studies increased almost 2 percent, which includes ultrasounds, MRI and CT scans.  Some service volumes remained unchanged last year, mainly those that proved sensitive to the economic downturn when consumers began cutting back on their use of services such as outpatient procedures and elective surgery.

Armato explained that finances are one of six overall health system goals which are considered equal and highly dependent upon one another: exceeding national benchmarks in patient satisfaction, the quality of medical care, the safety of care provided, converting to a dynamic electronic health record system and transforming care in areas that are meaningful to patients, such as increasing the amount of time nurses can spend with patients.

Novant facilities participate in state and national quality public reporting programs and consistently rank as national leaders.

"We are proud of our commitment to quality care," Armato continued.  "While the nation continues to demand affordability in healthcare, they also demand quality outcomes. We have made significant investments in ensuring all Novant Health employees understand their role in delivering safe, quality care to our patients."

Novant advanced another key strategy during 2012.  Its Shared Services Division announced partnerships last year with Ashe Memorial in Jefferson, NC, and Memorial University Health in Savannah, Georgia, and more recently with Cape Fear Valley Health System in Fayetteville, NC.  Under these agreements, the three healthcare organizations receive the benefits of sharing resources with Novant, while maintaining local autonomy.

"We must all adapt to the dynamic landscape of the healthcare industry," Armato commented. "Through Novant Shared Services we can expand our quality care while lowering cost structures, reducing duplication and growing responsibly to meet the needs of our communities."

Fred Hargett, chief financial officer of Novant Health, described another priority that continues to impact organizational finances, yet is a cornerstone of the health system’s not-for-profit mission.

"The amount of charity care Novant Health facilities provided free to patients was consistent with 2011, totaling $123 million," said Hargett.  "Overall, Novant provided $546 million in community benefit last year, which includes charity care, community outreach, support of free medical clinics for the uninsured and poor, unfunded care by state Medicaid programs and Medicare, and other expenses."

Bad debt, which is not included in community benefit reporting, continued to be high in 2012 but did not substantially increase from 2011.

In 2013, Novant Health expects to issue approximately $600 million of bonds.  Half of that amount involves refinancing existing debt, while the other half would finance future projects as well as some construction already underway.

"Lowering our interest expense, by accessing rates that continue at an all-time low, will save Novant Health approximately $27 million.  As the healthcare industry continues to face unprecedented changes and challenges, saving money is the right strategy to protect our ability to continuously invest in the organization," Hargett said.

Hargett also pointed out that financial experts nationwide continue to describe the outlook for healthcare providers as vulnerable.  The federal Medicare program for seniors continues to reduce payments to hospitals and divert those funds to help pay for the health reform law and its insurance expansion.  Medicare is implementing annual cuts to hospitals for 10 consecutive years to help pay for insurance expansion.  Novant hospitals are now experiencing the third year of those decreases.

In response to the many challenges the industry is experiencing, Novant Health commissioned an economic impact study of its operations to understand the organization’s full effect on the local economy. The study is expected to be released later in April.

Novant Health Financial Results