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Duke University Health System Maintains Financial Health

Posted on: Thursday, 6 October 2005, 00:00 CDT

By Jean P. Fisher, The News & Observer, Raleigh, N.C.

Oct. 6--Duke University Health System remains firmly on the path toward sustained financial health.

During the 12 months that ended June 30, the system had its best financial performance ever. This was during a period when Duke was dealing with fallout from a mix-up that led patients at two system hospitals to be operated on with instruments washed in used hydraulic fluid.

The health system made operating income of $75.6 million on revenue of about $1.5 billion during the fiscal year. That's about 5 cents of operating profit on every dollar of revenue Duke's hospitals, physician practices and other health-care businesses took in. It also was the fourth straight year of increased operating income.

During the budget year that ended June 30, 2004, the system made $58.1 million on revenue of about $1.4 billion, or just over 4 cents of profit per dollar of revenue.

Most hospitals strive to earn an operating margin of between

3 percent and 5 percent to buy new technology, keep up with rising labor costs and renovate and expand facilities. As an academic medical center, Duke also looks to operating income to help subsidize the cost of training medical students and medical research.

"It's difficult for an academic medical center to push that margin up," said Ken Morris, the system's chief financial officer. It's especially important for the health system to remain financially strong as it begins a major building phase to renovate and expand facilities, Morris said.

Duke Hospital is 25 years old, and many parts of it need updating. The former Raleigh Community Hospital, which Duke owns, and Durham Regional Hospital, which Duke runs, also will need upgrades.

Duke increased the number of patients seen for inpatient and outpatient treatment last year at its hospitals.

System hospitals cared for 60,600 inpatients during the most recent budget year, up more than 1,000 from the previous year.

Nearly 1.3 million patients received outpatient care from a Duke facility, up about 79,000 visits from the 2004 budget year. Many of the additional patients were in specialties that generate strong revenue, including cardiac care, neurosurgery, orthopedics and cancer.

Duke is continuing to build revenue-generating service lines.

The system is expanding its heart program at Raleigh Community, which now goes by the name Duke Health Raleigh Hospital, and expects to begin doing angioplasties, stents and other invasive heart procedures there early next year.

Public missteps in recent years have done little to stem the flow of patients to Duke's doors.

In 2003, Duke mistakenly gave Jesica Santillan, a 17-year-old heart and lung transplant patient, organs of the wrong blood type, and the girl died.

Bond analysts that rate the health system's credit predicted that the case could harm Duke financially if the system paid a large settlement or lost patients because of bad publicity.

But Duke entered into a confidential settlement with the Santillan family and suffered no apparent financial effects that year.

The mistake with the hydraulic fluid occurred in November and December after the fluid was drained from a hospital elevator into empty detergent barrels and then distributed as cleanser. It apparently has not affected Duke's bottom line.

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Copyright (c) 2005, The News & Observer, Raleigh, N.C.

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Source: The News & Observer

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