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Penn Medicine had a $58 million operating profit in summer quarter, up from $50 million last year

Like all health systems, Penn is still adjusting to overall higher labor costs. That is a big factor in lower profit margins.

The University of Pennsylvania Health System reported a $58 million operating profit for the quarter that ended Sept. 30. The system’s HUP pavilion is shown here in the background.
The University of Pennsylvania Health System reported a $58 million operating profit for the quarter that ended Sept. 30. The system’s HUP pavilion is shown here in the background.Read moreInga Saffron

The University of Pennsylvania Health System on Wednesday reported a $58 million operating profit for the three months that ended Sept. 30, up from $50 million in the same period last year.

The nonprofit system, which owns six acute-care hospitals, had $2.6 billion in revenue, a 7.2% increase. Inpatient admissions were up 2% and outpatient visits climbed 4%.

“We’re solid, if not where we ultimately want to be,” said the health system’s chief financial officer Keith Kasper. “We’re ahead of budget, but obviously a little bit short of where we’ve been historically.”

Penn’s operating margin in the first quarter was 2.3%. That was slightly better than last year’s 2.1%, but far below the 6% average operating profit margin Penn had during the three years before the pandemic, financial records show.

Kasper said that patient volumes are good, though the number of people who come to the emergency department but don’t get admitted to the hospital is down, particularly at Lancaster General Hospital, he said.

Penn State Health opened a new hospital in Lancaster County in October 2022. That’s likely a factor, he said, but it’s also because COVID-19 is not as active as it was last year. “It’s difficult to precisely target, what’s Penn State, what’s the market,” he said.

Growth in cancer services

Cancer services have been strong, with Lancaster doing especially well. The new proton-beam therapy center there is exceeding expectations, Kasper said. “We’re servicing that community, but we’re having a pretty large draw. The range of patients coming to see us in Lancaster is up to 80 miles,” he said.

As is the case throughout the health-care industry, Penn is still contending with high costs for overtime and temporary staff. “It’s grudgingly moving down, not nearly as fast as we want it to,” Kasper said.

Turnover rates are back down to pre-pandemic levels, particularly for registered nurses who care directly for patients. The system has a strong stream of applicants, but it still takes three to six months from when they hire a nurse to when the nurse takes care of patients independently, Kasper said.

In addition to reducing the use of high-cost temporary staff, health-care systems still have to adjust to the pay raises that were awarded during the pandemic to attract and retain staff. “Once you embed compensation increases, they don’t go anywhere. We’re just having to work our way through that,” Kasper said.

A few Philadelphia-area health systems have gotten rate increases from insurers this year to help with that, though it’s not clear how significant they are. “We weren’t successful in that,” Kasper said.

Moody’s Investors Service and Standard & Poor’s Ratings Service last month issued reports on the health system’s financial condition. Both agencies affirmed their current high ratings and said the financial outlook was stable.