Saying farewell (for now) to a terrible financial quarter

Judging from our recent conversations with health system executives, we’d guess CEOs across the industry woke up this morning glad to see the first quarter in the rearview mirror.

Almost everyone we’ve spoken to has told us that the past three months have been miserable from an operating margin perspective—skyrocketing labor costs, rising drug and supply prices, and stubbornly long length of stay, particularly among Medicare patients.

In the words of one CFO, “I’ve never seen anything like this. For the first time, we budgeted for a negative margin, and still didn’t hit our target. I’m not sure how long our board will let us stay on this trajectory before things change.”

Yet few of the drivers of poor financial performance appear to be temporary. Perhaps the over-reliance on agency nursing staff will wane as COVID volumes bottom out (for how long remains unknown), but overall labor costs will remain high, there’s no immediate relief for supply chain issues, and COVID-related delays in care have left many patients sicker—and thus in need of more costly care. Plus, the lifeline of federal relief funds is rapidly dwindling, if not already gone.

Expect the next three quarters (and beyond) to bring a greater focus on cost cutting, especially as not-for-profit systems struggle to defend their bond ratings in the face of rising interest rates.

Buckle up, it’s going to be a bumpy landing.