University of Pennsylvania Health System has a $160M operating profit so far in fiscal 2023

The University of Pennsylvania Health System remained profitable in the first nine months of fiscal 2023, though at a lower level than it saw before the coronavirus pandemic, according to financial results it released Wednesday.

Like other health systems, the not-for-profit owner of six hospitals was squeezed by higher costs for labor, drugs, and other supplies that have led to widespread losses here and nationwide.

In the three years before the coronavirus pandemic, Penn had an average operating margin of 5.7% during the first three quarters of each fiscal year. Penn’s margin has averaged just over 2% in the corresponding periods this year and last year.

The health system’s chief financial officer, Keith Kasper, said this month that the organization had strong financial performance in March, but is still contending with high labor costs for contract staff.

“We’ve had to add premium labor purposefully to open units at HUP to staff to the volume,” Kasper told University of Pennsylvania trustees on May 11. But prices are coming down. Last spring, Penn was paying $180 to $200 an hour for contract nurses. “We’re half of that now,” he said.

Another financial challenge highlighted by Kasper: a persistent increase in the average amount of time patients are spending in the hospital. That’s a problem because in most cases hospitals don’t get paid more if patients stay longer than insurers expect them to.

“This is a hard nut to crack,” Kasper said. “We’ve seen some real progress at Presby and HUP,” but the overall average for Penn’s hospitals was 6.26 days per stay, up from fewer than six in the four years through 2021, records show. Temple University Health System and Jefferson Health have also seen an upward trend in the average length of patient stays.

People who go to the hospital are sicker than they used to be, because so much care has shifted to outpatient settings, plus staffing shortages in nursing homes have made it hard for them to admit new patients every time a hospital calls.

On the outpatient front, cancer care has shown strong growth, Kasper said, highlighting the new proton therapy center at Lancaster General. The center has performed 502 treatments since opening in January, which is more than expected, he said. Some patients travel up to 70 miles for the treatments, he said.

Penn’s total revenue in the nine months that ended March 31 was $7.4 billion, up 8% from the same period a year ago. It’s operating income was $160 million, up 17%. It’s notable that in the three months ended in March, Penn swung to a $57 million operating profit from a rare $15 million loss in the corresponding period last year.