Vital Signs in the Health System

November 30, 2009

Even as the university is looking to ever-tighter budgets, Duke University Health System seems to be a model of good financial health.

Fitch Ratings, a financial ratings service, recently reported that the health system enjoys a "very strong balance sheet and operating profitability, leading market-share position in Durham County, excellent clinical reputation, and association with its parent, Duke University."

For the most recent fiscal year, the health system earned about $155 million from operations. (But like the university, it did see a decline in assets—a loss of about $500 million.) According to the ratings service, outpatient visits grew by 8.6 percent, emergency visits by 6.3 percent, and surgeries by 5.8 percent.

Victor Dzau, chancellor for health affairs and president and CEO of Duke University Health System, notes that there's a "financial firewall" between the health system and the university. Still, there are administrative overlaps, and on many levels the health system is integrated with the university—particularly with the academic enterprises of the medical school and nursing school.

Whatever the eventual shape of health-care reform, there are likely to be changes in the government's reimbursement policies for Medicare, Medicaid, and indigent care. (Dzau says he wishes the national health-care conversation had focused more on enhancing the delivery of care and encouraging disease prevention.) Those changes will have a major financial impact on DUHS, Dzau says. But, he adds, DUHS is nimble enough to adjust. It has found efficiencies and synergies across its operation, in areas ranging from materials procurement to information technology. At the same time, DUHS has strategically grown into a large, integrated delivery system with three hospitals and affiliated clinics throughout North Carolina and other parts of the Southeast.

DUHS is now looking to physical growth, notably with a planned cancer center and surgery and critical-care center, together estimated to cost more than $700 million. "We have run out of capacity in a thirty-five-year-old facility," Dzau says. "If you look at the trajectory of population growth, health-care demand will always be there."