Copyright The Philadelphia Inquirer
Amid persistently higher costs, three Philadelphia-area health systems have cut expenses over the last two years by changing how they account for investments in facilities and equipment. The change significantly boosted operating income in all three cases. ChristianaCare and Main Line Health are now spreading the cost of buildings and building improvements over as many as 80 years, they said in their fiscal 2025 audited financial statements. That is double the maximum number of years they previously used to calculate what accountants call depreciation expense. Thomas Jefferson University made a similar change last year. All three health systems use PricewaterhouseCoopers LLP as their auditor. The firm, which did not respond to a request for comment, also has Philadelphia health-system clients that have not extended their depreciation schedules. The term depreciation expense refers to the way hospitals and other businesses allocate the cost of a building, a piece of equipment such as an MRI machine, or even software to management patient records across the number of years the asset is likely to be used. It’s a noncash expense because the money used to make the purchase is recorded elsewhere in the financial statements. Several financial and accounting experts said the change could be seen as cosmetic. “It’s not affecting operations. It’s not increasing their revenues. It’s not decreasing their cash expenditures. It is purely a bookkeeping entry,” said Steven Balsam, a professor of accounting at Temple University’s Fox School of Business. Main Line Health At Main Line, the extended depreciation schedule reduced the expense by an estimated $37.5 million. That helped the system achieve a small, $4 million operating profit for the first time since fiscal 2021, when federal COVID-19 aid buoyed hospitals. Without the depreciation savings, Main Line would have had an operating loss of $33.5 million in the year that ended June 30, compared to a $61 million operating loss in fiscal 2024. Asked for comment, Main Line’s chief financial officer Leigh Ehrlich noted that the system’s financial performance had improved, thanks to “increased patient volumes and continued focus on expense management.” Excluding noncash depreciation and amortization in each of the last two years, Main Line’s operating income improved to $127.8 million from $96.7 million. ChristianaCare ChristianaCare reviewed the depreciation schedules of fixed assets “as part of our ongoing commitment to maintain accurate and reliable financial reporting,” the nonprofit’s chief financial officer Rob McMurray said in an email. The result was a $24.4 million reduction in depreciation expense. The review also resulted in a $9 million write-off of unspecified assets, which meant that in fiscal 2025 the benefit to operating income was $15 million, McMurray said. ChristianaCare’s operating income in the year that ended June 30 was $35.5 million, or $20.5 million without the accounting change. The organization had $126.2 million in operating income in fiscal 2024. Thomas Jefferson University Last year, Thomas Jefferson University opened its $762 million Honickman Center in Philadelphia. Normally, taking a building like that into service would increase depreciation expense. Instead, Jefferson’s depreciation expense fell by $68 million, according to its audited financial statement for the year that ended June 30, 2024. The decline happened after Jefferson opted to spread the cost of all buildings and building improvements over as many as 70 years, according to the depreciation schedule in financial statement. Even with the depreciation change, Jefferson’s operating income in fiscal 2024 was extremely narrow, at $1.34 million on nearly $10 billion in revenue that year. The benefit of lower depreciation expense continued in fiscal 2025, as it will in future years for ChristianaCare and Main Line. Depreciation expense at other local systems Most Philadelphia-area health systems use a schedule for depreciating buildings and building improvements that maxes out at 40 years, an Inquirer review of financial statements found. In doing so, Temple University Health System goes by the 2023 American Hospital Association guidelines, the system’s chief financial officer Jerry Oetzel said. “You’re constantly modernizing your facilities to allow for the delivery of medicine based on current times,” Oetzel said in an interview. “Who knows 15 years from now? We don’t have clear insight, but it’s probably going to be more home care.” That’s why Temple hasn’t adopted a longer depreciation schedule. “It’s just a savings in operating expenses without the benefit of any cash behind it,” Oetzel said.
