CHOP remained profitable, but barely, in fiscal 2023

Despite losing money from February through June, Children’s Hospital of Philadelphia finished its most recent fiscal year with a narrow operating profit.

The $23 million operating profit amounts to a margin of 0.57% for the year that ended June 30. The previous year’s operating profit was $154 million.

Both figures are low compared historically at CHOP. In the five years before the pandemic, CHOP’s average operating profit margin was 8%. Operating profit excludes most investment profits and losses and certain unusual items that are not central to day-to-day activities.

CHOP CEO Madeline Bell told employees in a May 18 note to staff that the organization was operating in a health-care environment that is “changing and evolving very quickly.” The Inquirer obtained the note after publishing an article reporting that Bell received $7.7 million in pay in 2021, the bulk of it in a $5.6 million bonus from a three-year incentive program.

Bell’s note said financial headwinds, including changes in the mix of payments from private and public insurers and increases in labor and supply costs, had added “a significant amount of risk to our financial position.”

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Separately on Tuesday, CHOP said in a statement that in the first half of fiscal 2023 that it, like other pediatric hospitals, “faced an unprecedented surge in respiratory viruses, including RSV, flu and Covid-19.” That crush of patients hurt hospital financial results because beds were filled with less complex cases that bring in less revenue from insurers.

Even so, the health system’s revenue increased 10% in fiscal 2023, to $4 billion. However, its largest expense — salaries, wages, and professional fees — increased 15%, squeezing CHOP’s profit margin.

Bell’s May note also said employees should expect managers to defer discretionary spending, put off hiring except for jobs that are especially hard to fill, and cut back on overtime and expensive temporary staffing through outside agencies in order to stay in the black for the fiscal year.

Cost-cutting continued in July, when managers at CHOP’s new King of Prussia hospital asked employees who work during the day either to buy their own coffee in the facility’s cafeteria and coffee shop or take advantage of the free Wawa coffee cart, according to an internal email. The message dated July 24 said that CHOP would reduce the number of K-cups stocked in staff lounges. The goal was to preserve K-cups for people who work overnight, when other options are not readily available.

Despite its financial challenges, CHOP said that in the current fiscal year it still plans to increase capital expenditures and other investments by 15%. Among the projects planned is a children’s crisis and behavioral health inpatient center at the PHMC Health Center on Cedar in West Philadelphia, at the former Mercy Philadelphia Hospital. That project, combined with the new outpatient behavioral health center at 4601 Market St., represents a $100 million investment.

CHOP also said it would have money for merit pay raises and “compensation equity adjustments for all employees.”