Sentara Healthcare operating income up 50 %

NORFOLK

An increase in state rates for Medicaid health plans and the acquisition of Potomac Hospital helped bump up Sentara Healthcare's operating income by more than 50 percent between 2009 and 2010.

The Norfolk-based health system reported $190.4 million in operating income on operating revenues of $3.39 billion for 2010, according to audited financial statements released by Sentara.

The nonprofit reported $2.21 billion in net assets as of Dec. 31, which was $316.8 million more than a year earlier. The increase came from operating income and nonoperating gains, mostly the performance of its nearly $1.48 billion of investments.

Last year's increase in net assets was lower than the $405.4 million posted in 2009. That year, its investments performed better and it had a big gain in the size of its pension assets.

"I think we had a respectable year," said Robert Broermann, Sentara's chief financial officer. The 5.6 percent operating margin for 2010 is "healthy in our industry," he said. "It's not over the top."

Sentara employs 19,000 people in Hampton Roads, second only to Newport News Shipbuilding among private employers. The health system operates seven local hospitals, as well as nursing homes, outpatient centers, home health services, a physicians group and a health insurance company.

In December 2009, Sentara paid $92 million for Potomac Hospital in Northern Virginia. Earlier this year, the company finalized acquisitions in Harrisonburg and Charlottesville, bringing the system's hospital count to 10. The number of Virginia employees rose to 24,000.

Sentara spent $197 million last year on construction and other capital projects. About $117 million of that money funded ongoing work on, among other projects, bed towers for Sentara Obici Hospital in Suffolk and Sentara CarePlex in Hampton; expansion of Sentara Leigh Hospital in Norfolk; and construction of Sentara Princess Anne Hospital, set to open in Virginia Beach in August.

Last year's increase in operating income was driven by a spike in revenue from patient services and income from Sentara's insurance arm, Optima Health.

Revenue from patient services increased by 12.3 percent to $2.03 billion in 2010, the first full year after the addition of what's now Sentara Potomac Hospital, according to the statements.

That number didn't include about $304 million in medical claims paid by Optima to Sentara health providers because both companies are part of Sentara Healthcare, Broermann said. Because of accounting rules, such payments are eliminated in these reports, he said. Sentara Healthcare's total patient service revenue - including that money - was about $2.3 billion for 2010.

Optima's premium income rose by about 12.1 percent to $1.29 billion. The growth mostly was due to relatively high premium reimbursement rates in 2010 for health maintenance organizations managing Medicaid benefits, Broermann said.

The Virginia Department of Medical Assistance Services decreased the rates by an average of 3.76 percent effective Friday, the start of the state fiscal year, according to a spokesman.

"The latter half of 2011 and, chances are, the first half of 2012 are going to look pretty bad," Broermann said. "It ends up being a two- or three-year build and then a two- or three-year ride down."

The cost of uncompensated care provided by Sentara rose about 17.9 percent between 2009 and 2010, to $162.6 million. That includes charity care, the cost of unpaid patient care that is written off and losses from Medicaid, which often pays rates below the cost of providing a service.

The health system also contributed $16.9 million in medical education, community health programs and donations to and sponsorships of charitable organizations.

Sentara and most of its subsidiaries are tax-exempt as charitable organizations. The exceptions are Sentara Medical Group Innovations, which includes some specialized physician practices, and Sentara Holdings Inc., mostly its non-HMO insurance business, some medical office buildings and a practice management business.

Sentara's taxable entities paid cash income taxes of $2.6 million in 2010, down from $5.2 million the prior year, Broermann wrote in an email. The decrease was due to losses on Optima's Medicare PPO offering and a drop in the profitability of Optima's PPO plan because of an unusually large number of high-dollar claims, he wrote.

The taxable entities paid $7 million in other taxes in 2010, up from $6.5 million in 2009, Broermann wrote.

Sentara's chief financial officer said he was pleased with the company's 2010 performance. However, uncertainty about government insurance programs, such as Medicare and Medicaid, make it difficult to predict Sentara's balance sheets in coming years.

"We are conservative by nature, and we remain very cautious about what the future brings for us," Broermann said. "We expect it to be leaner going forward than it's been in the past."

Amy Jeter, (757) 446-2730, amy.jeter@pilotonline.com