Jefferson's explosive growth generates operating losses

Sidney Kimmel Medical College, in Center City, is part of Thomas Jefferson University, which reported a significant operating loss in the first half of fiscal 2018.

Thomas Jefferson University has grown explosively in the last three years through five acquisitions, but operating profits at the nonprofit based in Center City have not kept pace.

In the six months ended last Dec. 31, Jefferson had an operating loss of $27.9 million, down sharply from an operating profit of $24.3 million during the same period a year earlier, according to preliminary financial results released to bondholders Thursday.

Meanwhile, total revenue for the six-month period climbed 15 percent to $2.25 billion from $1.95 billion.

Jefferson attributed the loss to short-term investments needed to reach long-term goals and expects results to improve.

“The organization has solid plans in place that are already showing results, including streamlining operations and addressing the costs associated with increasing access and quality, which is the right thing to do for our patients,” said John Brand, Jefferson’s vice president of media relations. “We are confident we will reach our fiscal-year budget targets.”

But in the first six months of the fiscal year, Jefferson came in under almost all of its budget targets for the amount of care provided. Those measures include admissions, surgeries, and outpatient visits.
Jefferson said layoffs are not planned at this time. On a full-time-equivalent basis, employment at Jefferson has climbed to 24,239 on Dec. 31 from 15,864 two years earlier.

In a sign of improvement, Jefferson’s operating loss for the three months ended Dec. 31 was $11 million, an improvement over the $17 million operating loss in the three months ended Sept. 30.

Also moving in the right direction was the aggregate occupancy rate for its 14 hospitals. That measure of the percentage of Jefferson’s 2,904 licensed beds being used improved to 57.8 percent in the six months ended Dec. 31 from 52.5 percent in the three months ended Sept. 30.

Under president and chief executive Stephen K. Klasko, Jefferson acquired Abington Health in 2015 and Aria in 2016. Philadelphia University and Kennedy Health followed last year. In addition, Jefferson bought a controlling stake in Rothman Orthopedic Specialty Hospital in Bensalem. In its latest deal, Jefferson acquired Magee Rehabilitation on Jan. 5. Last fall, it announced a preliminary deal for Monell Center, a University City organization that researches the senses of taste and smell.

The organization’s balance sheet, as measured by debt-to-capitalization, has remained strong. That ratio, showing the amount of debt an organization has relative to its total equity, improved to 32 percent in Jefferson’s financial report for the six months ended Dec. 31 from 36.5 percent two years earlier.

The median debt-to-capitalization ratio for nonprofit health systems nationally was 34 percent in 2016, according to Standard & Poor’s.

In part, Jefferson has remained strong because it did not have to pay cash for any of its acquisitions. All the acquired organizations received seats on Jefferson’s board. “It’s all governance as currency,” Klasko said last month.