Thomas Jefferson University posted a slim $1 million operating profit in the three months that ended Sept. 30 — including $100 million in government aid — and told bond investors it will take a “multi-year” effort to return the large Philadelphia system to pre-COVID-19 profit levels.
“Despite the economic shock waves caused by the pandemic, our financial position and outlook for full recovery remain strong,” Jefferson said in an emailed statement. “We are actually seeing a slight increase in student enrollment, and patient volume is coming back across our clinical enterprise.”
Jefferson’s financial results are of particular interest because it expanded rapidly through acquisitions under chief executive Stephen K. Klasko and is one of two Philadelphia-area nonprofit systems whose operations failed to generate enough cash in the year that ended June 30 to comply with lender agreements. The other is Tower Health, based in West Reading, which also expanded rapidly through acquisitions. Tower said last week that it will consider selling all six of the Philadelphia-area hospitals it acquired during the last three years.
The road to recovery from COVID-19-related losses is expected to be a long one for Jefferson, which had $1.4 billion in revenue in the three months ended Sept. 30. COVID-19 restrictions have limited non-urgent care and led to higher expenses for virtually all hospitals.
The number of outpatient surgeries performed at Jefferson facilities rebounded to 9,711 in the most recent quarter from 5,573 in the three months that ended June 30, but they were still 20% lower than a year ago. Philadelphia’s restrictions on activities announced Monday do not affect health services, which is a break for the industry.
Jefferson’s quarterly financial filing, published late Friday, said the 14-hospital system expects to break even in the year ending June 30, 2022. The filing didn’t mention this, but that timeline could change if Jefferson succeeds in acquiring the often unprofitable Einstein Healthcare Network.
The Federal Trade Commission sued to block that deal, alleging it would give Jefferson too much market power and allow it to raise prices unfairly. A federal judge has yet to issue his decision.
Cost-savings measures during the current fiscal year, ending next June, include the suspension of retirement plan contributions, the cancellation of annual merit raises, reductions in incentive pay, and the elimination of 500 to 600 unfilled full-time positions. Jefferson said that on Sept. 30 it employed 27,504 on a full-time-equivalent basis, up 3.8% from June.
Despite those cuts to employee benefits and pay, Jefferson’s budget shared with bondholders shows a $324 million operating loss in the year ending June 30, 2021, not counting a projected $200 million in government aid.
Jefferson was not specific about what level of pre-COVID-19 profitability it aims to return to.
Since embarking in 2015 on its extraordinarily rapid expansion, Jefferson’s best operating results came in fiscal 2016, when it posted a 3% operating profit margin. That was the first full year after Jefferson acquired the financially strong Abington Health and before the deals it made for Aria, Kennedy, Magee, and Philadelphia University.
In a move to help counter pandemic-related revenue losses, Jefferson took advantage of a new Pennsylvania law that allows nonprofits to increase endowment spending to 10% for up to three years, the previous cap was 7%. It’s not clear how much additional money that allowed Jefferson to spend.
Several other nonprofit health systems have also reported results for the first quarter of fiscal 2021.
Doylestown Health had an operating profit of $3 million on $101 million in revenue, but did not disclose how much government aid it received and did not respond to a request for that information.
Main Line Health’s $45 million in operating income included $60 million in CARES Act money. The system’s revenue was $506 million.
In Philadelphia, Temple University Health System reported an operating profit of $5.4 million on $534 million in revenue. That included $20 million in CARES Act funding.
Tower Health had a $32 million operating loss in the quarter, including $42 million in CARES funding, management told investors last week, but did not report quarterly revenue.