🏥 Mercy’s Operating Income Nosedives 86%

Plus: Vizient's latest CARE report, and commentary on data, risk, and the future of VBC models

PARTNERED WITH Happy Thursday, Hospitalogists! I'm in Austin today and excited for the first-ever Hospitalogy VBC Retreat! Can't wait to see what comes out of our discussions around value-based care. It's a closed-door event to make sure we can have authentic conversations in the room, but I'll definitely have some high-level insight to share come next week. If you're not here with me, I hope to see you next year! We've got some exciting stuff planned for events. Was this email forwarded to you? Subscribe Here SPONSORED BY PHOTON Stop making prescribers shop for patients! Legacy e-prescriptions trap patients at one pharmacy, driving call-backs when prices are high, meds are out of stock, or prior auth causes delay. Photon integrates with your EMR workflows to empower patients to: Receive prescriptions via secure SMS shortlink Compare pharmacies by price, distance, and convenience Discover system-owned pharmacy services Give patients choice so prescribers can focus on care. See How It Works BLAKE'S BREAKDOWN Going deeper on an interesting topic, theme, or trend  Mercy Health's Operating Income Drops 86% in FY 2025 Mo.-based Mercy Health, the sixth-largest Catholic health system in the U.S., with 33 acute care hospitals and 17 specialty hospitals, reported an operating income of $21.4 million (0.2% margin) for the fiscal year ending June 30, 2025.   That's an 86% drop from the $157.4 million (1.7% operating margin) in fiscal 2024.   *Sad trombone*   Let's break it down. Key numbers from the Sept. 11 report: Mercy delivered top line growth of about 10% to $10.18 billion on the back of stronger patient service revenue (up about 10%) and a large step up in capitation revenue. Expenses grew by 11.5% to $10.2 billion, compressing operating margin to nearly zero. Mercy reported a net income of $302.5 million in fiscal 2025, down from a net gain of $500 million the previous year. The system is leaning into risk with capitation revenue up 47% percent and the related medical claims expense up 67%, a clear signal of strategic push into value. One of the things moving the numbers was Mercy's payor and product mix. Medicare was up about 8.5% to $3.780 billion, Medicaid up about 17.6% to $995.5 million, managed care and other up about 9.6% to $4.261 billion, self pay up about 18% to $135.3 million. Capitation revenue jumped to $615.7 million and medical claims expenses tied to that risk grew to $331.8 million. Retroactive third-party settlements increased patient service revenue by about $35.7 million for 2025. But, none of this points to an obvious reason for such a drastic dip.   So, what the heck happened?   The audit didn't suggest any strategic moves or partnerships that may have played a role and I haven't seen any commentary or analysis from management. In short, we may have to wait for their annual report to understand why this drop was so significant.   If anyone has any hypotheses, I'd love to hear from you. Meanwhile, I'll keep my eye on it. And if you're with Mercy and want to add some color, please do. Vizient's System of CARE Scorecard: Q2 2024 to Q1 2025 Vizient dropped their System of CARE Scorecard for Q2 2024 to Q1 2025. I pulled the big trends. (Surprise surprise, access is still an issue.)   Trends Across All Hospitals New patients in over half of the top-volume specialties face waits longer than 10 days. Health systems need to solve for access yesterday—or risk losing patients to competitors who do. Emergency Department (ED) throughput is improving. Shorter ED lengths of stay and a steady admission rate of 22% are positives. But here's the kicker: emergent cases are growing as a share of visits, which means higher acuity patients consuming more resources. The "easy" gains in ED efficiency are largely tapped out. The next wave requires rethinking workflows. Observation unit ALOS is declining (a win), but with volumes projected to grow 12% over the next decade, even short stays could become a capacity choke point. Inpatient ALOS is stable—but 65% of all admissions come through the ED, and hospitals are still running hot on occupancy. Bottom line: elective cases, new service lines, and flex capacity are being crowded out by persistently high baseline demand. AMCs and Community Hospitals (i.e. Different Flavors of the Same Problem) ED ALOS: 4.7 hours at AMCs vs. 3.5 hours at community hospitals. Treat-and-release: Community hospitals send ~80% of ED patients home vs. 75% at AMCs. Inpatient ALOS: AMCs clock in at 6.1 days vs. 4.8 days in community settings. ED as the front door: AMCs see 65% of admissions from EDs; communities are even higher at 76%. Both models are ED-dependent, resource-intensive, and operating with razor-thin flexibility.   Overall, both settings need to strengthen access, rethink workflow, control cost baselines, and build post-acute partnerships to stay ahead of forecasted demand. The next decade isn't about squeezing more out of the ED—it's about breaking the bottleneck before it breaks the system. Under the Hood of VBC "More is not better. You don't need a large workforce. You need tools that inform you in real time so you can take action that's meaningful and work with patients in a manner that helps them self-motivate, self-activate, and understand what it is they can do to contribute to their own health." - Regina Berman, Adventist Health   In the spirit of thinking about VBC (shoutout to all the attendees and sponsors who are joining me IRL in Austin today – stop reading this and pay attention), I wanted to share key takeaways from a great conversation I had in my community with Regina Berman of Adventist Health and Pranam Ben of The Garage a few months back.   Value-based care (VBC) has become more urgent, and more strategic — but health systems need to be smarter about taking on risk. From a tech perspective, that means a smarter use of data and people to shift toward better outcomes and lower costs: The ecosystem has solved data availability; now the goal is actionable interoperability at scale. "A legacy EHR system will never meet the needs and the agility outputs of a value-based care or population health management system," said Regina. You need a unified infrastructure with specialized, agile platforms that allow real-time data flow and care navigation tailored to specific risk contracts and/or patient populations. Care teams need tools that normalize data from multiple sources, integrate clinical and claims data for holistic insights, and provide real-time decision support at the point of care. Data must be embedded in context and available for clinicians to use. Part of the value in VBC is ensuring patients have personalized, engaging experiences. Unified data helps care teams identify, stratify and manage at-risk and rising-risk patients in real time. Without a single source of truth, care managers face a sea of disconnected information and patients feel like you don't really know them. We're at a pivotal moment. "It has taken us a decade to get to this point where we can all eventually take off, and VBC becomes the mainstream experience for all healthcare stakeholders," said Pranam.   At the same time, some orgs are still just dipping their toes. But, when we can say 60% of overall commercial contracting has a value-based modifier, that's a good indication about the direction we're headed for the future.   To join convos like these, apply for the membership here. I'll have a lot more to say about VBC post-retreat, so stay tuned. SPONSORED BY CHEGG SKILLS You may not realize it, but you're in an AI skills race with your competitors. And if you're implementing AI without training your teams to use it, you're falling behind. What you need is practical AI programs purpose-built for healthcare.  For my new report, I explore online AI upskilling programs that provide role-specific training for healthcare administration and clinician teams.  It's time we give teams the right skills they can apply immediately and fast-track the value of AI. Get the Report Thanks for the read! Let me know what you thought by replying back to this email.   — Blake   Share Hospitalogy, Earn Rewards Have friends who'd love Hospitalogy too? Click the link below to share Hospitalogy with your friends and earn awesome rewards! PS: You have referred 0 people so far Share Hospitalogy! Get your brand in front of 49,100+ executives and healthcare decision-makers. Let's Partner 🏥 Hospitalogy Membership I'm building a community of leaders in strategy, finance, and ops at hospitals and health systems to help us connect, learn, and grow together. Join the movement here. 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