University of Pennsylvania Health System passed $10 billion in annual revenue for first time

The University of Pennsylvania Health System topped $10 billion in annual revenue for the first time and reported $278 million in operating profit in the year that ended June 30, up 17% from $238 million last year, the nonprofit health system said Thursday.

Its operating cash flow margin was 7.2% for the year, down slightly from 7.4% the year before. “We have a solid operating margin, but every year we have rates that don’t keep pace with our expense inflation,” said Julia Puchtler, who became the health system’s chief financial officer on July 1.

The year’s results benefited from a $129 million federal drug settlement, partially offset by an extra $90 million set aside for future medical malpractice costs. Those costs are expected to rise significantly in the next few years.

Here are the highlights:

Revenue: Penn’s total revenue climbed 9.3% to $10.9 billion, up from $9.97 billion in fiscal 2023. For the second year in a row, Penn reported a lower average length of stay for inpatients in its hospitals. That’s thanks to an effort to move patients as efficiently as possible on to the next stage of care, Puchtler said.

For example, Penn has a pilot program that allows patients to receive skilled nursing care at home, rather than in a facility. Nursing homes often have capacity constraints, causing patient backlogs in hospitals, which typically don’t get paid more for longer stays.

Expenses: Costs for supplies and services rose significantly faster than revenue from patient care. Puchtler pointed out two major factors in that increase. One was a significant increase in a state Medicaid assessment. That will eventually lead to a bigger redistribution from that program, which is supposed to help hospitals that serve large numbers of Medicaid patients. Penn also saw large increases in expenses for chemotherapy drugs used in its growing outpatient cancer program, she said.

Notable: Penn added $10 million to its medical malpractice reserves in the last quarter of the fiscal year. That’s in addition to the amount it typically reserves and the $80 million charge it took early this year. Those increases are not a reflection of a rule change allowing cases to be filed in Philadelphia rather than in the county where the alleged incident occurred.

“It’s based off of the severity of the settlements,” Puchtler said.