While hospitals’ overall performance declined slightly in September compared to the previous month, the median Kaufman Hall Calendar Year-To-Date Operating Margin Index reflecting actual margins was 1.4% in September. This slight increase was due to the historical variation in the performance of hospitals across 2023.
Volume decreased across the board, but data indicate improvement in the overall financial picture compared to 2022.
Does hospital ownership matter? According to a study published last week in Health Affairs Scholar, NOT MUCH. That’s a problem for not-for-profit hospitals who claim otherwise.
58% of U.S. hospitals are not-for-profit hospitals; the rest are public (19%) or investor-owned (24%). In recent months, not-for-profit systems have faced growing antagonism from regulators and critics who challenge the worthwhileness of their tax exemptions and reasonableness of the compensation paid their top executives.
The lion’s share of this negative attention is directed at large, not-for-profit hospital system operators. Case in point: last week, Banner Health (AZ) joined the ranks of high-profile operators taken to task in the Arizona Republic for their CEO’s compensation contrasting it to not-for-profit sectors in which compensation is considerably lower.
Unflattering attention to NFP hospitals, especially the big-name systems, is unlikely to subside in the near-term. U.S. healthcare has become a winner-take-all battleground increasingly dominated by large-scale, investor-owned interests in hospitals, medical groups, insurance, retail health in pursuit of a piece of the $4.6 trillion pie.
The moral high ground once the domain of not-for-profit hospitals is shaky.
The NYU study examined whether hospital ownership influenced decisions made by consumers: they found “Fewer than one-third of respondents (29.5%) indicated that hospital status had ever been relevant to them in making decisions about where to seek care…significantly more important to respondents who indicated the lowest health literacy—74.7% of whom answered the key question affirmatively—than it was for people who indicated high health literacy, of whom only 18.3% found hospital ownership status to be relevant…also considerably more relevant for people working in health care than for those who did not work in health care (61.0% vs 24.5%)…
We found little evidence that hospital nonprofit status influenced Americans’ decisions about where to seek care. Ownership status was relevant for fewer than 30% of respondents and preference was greatest overall for public hospitals. Only 30–45% of respondents could correctly identify the ownership status of nationally recognized hospitals, and fewer than 30% could identify their local hospitals.
These findings suggest that contract failure does not currently provide a justification of nonprofit hospitals’ value; further scrutiny of tax exemption for nonprofit hospitals is warranted.”
Are NFP hospitals concerned? YES. It’s reality as systems address near term operational challenges and long-term questions about their strategies.
Last weekend, I facilitated the 4th Annual Chief Strategy Officers Roundtable in Austin TX sponsored by Lumeris. The group consisted of senior-level strategists from 11 not-for-profit systems and one for-profit. In one session, each reacted to 50 future state scenarios in terms of “likelihood” and “disruptive impact” in the NEAR term (3-5 years) and LONG TERM (8-10 years) using a 1 to 10 scale with 10 HI.
From these data and the discussion that followed, there’s consensus that the U.S. healthcare market is unlikely to change dramatically long-term, their short-term conditions will be tougher and their challenges unique.
‘Near-term cost containment is a priority. Hospitals are here-to-stay, but operating them will be harder.’
‘Increased scale and growth are necessary imperatives for their systems.’
‘Hospital systems will compete in a market wherein private capital and investor ownership will play a growing role, insurers will be hostile and value will the primary focus of cost-reduction by purchasers and policymakers.’
‘Distinctions betweennot-for-profit and for-profit hospitals are significant.’
‘Conditions for hospitals will be tougher as insurers play a stronger hand in shaping the future.’
Given the NYU study findings (above) concluding NFP ownership has marginal impact on hospital choices made by consumers, it’s understandable NFPs are anxious.
My take:
The issues facing not-for-profit hospitals in the U.S. are unique and complex. Per the commentary of the CSOs, their market conditions are daunting and major changes in their structure, funding and regulation unlikely.
That means lack of public understanding of their unique role is a conundrum.
Paul
PS: Issues about CEO compensation in healthcare are touchy and often unfair.
In every major NFP system, comp is set by the Independent Board Compensation Committee with outside consultative counsel. The vast majority of these CEOs aren’t in the job for the money joining their workforce in pursuit of the unique higher calling afforded service leaders in NFP healthcare.
How should health systems spend their “community benefit” dollars?
That question was at the heart of a discussion we participated in recently at a member board meeting. To maintain their nonprofit status, all health systems are required to devote a portion of their earnings to activities that benefit the communities they serve, based on an assessment of local health needs.
The question our member’s board was grappling with, led by the system’s executive team, was how to ensure their “investment” in the community is as leveraged as possible, and generates the greatest “bang for the buck” in terms of better community health.
As the importance of addressing the social determinants of health grows, many systems are trying to target their resources toward activities that that enhance their ability to improve health status, and to reduce the barriers to better health faced by many. That requires a level of rigor and commitment to “community ROI” that goes beyond simply pointing to charity care statistics and the number of uninsured served.
What most impressed us in the discussion was the application of the same investment mindset to community benefit that the system brings to capital allocation decisions—with due attention to implementation plans, outcomes metrics, and accountability.
As the system’s COO framed it, “We don’t just want to be a ‘piggy bank’ for charitable causes, we want to make sure our investment in the community is really making a difference” in local residents’ health. At the same time, the board recognized that its role extends beyond simply contributing dollars to acting as a convener and facilitator of other community organizations working together toward a common set of goals. A worthy discussion for the board, for sure, and a priority we’re seeing leading systems begin to embrace in a serious way.
Around 400 primary and urgent care physicians, along with 150 nurse practitioners and physician assistants, employed by Minneapolis, MN-based Allina Health System have voted to unionize with the Service Employees International Union, forming the largest private-sector union of physicians in the country.
Allina, which operates 12 hospitals across Minnesota and Wisconsin, already saw over 100 inpatient physicians at its Mercy Hospital vote to unionize earlier this year. While Mercy’s physicians organized against pressure to adhere to the hospital’s new length-of-stay guidelines, this larger group of clinic-based providers say they are motivated by chronic understaffing that they claim has caused burnout and threatened patient safety. Allina Health laid off 350 workers this summer after posting a nearly $200M operating loss in 2022.
The Gist:When health systems originally recruited physicians into their newly developed employed medical groups, many pitched the arrangement as more of a partnership than traditional employment.
However, now that a majority of the nation’s physicians are employed by hospitals, some physicians are rethinking their relationships with their employers.
Only six percent of doctors were unionized in 2021, but a recent spate of unionization efforts by residents and physicians suggest that number is on the rise.
Health systems hoping to address physicians’ concerns and unionization activity should note that the motivating factors cited by organizing physicians surround working conditions, including a lack of support staff and professional autonomy, rather than personal wage demands.
Earlier this month, Governor Gavin Newsom signed a bill that puts all full- and part-time California healthcare workers, including all ancillary support staff, on a path to earning $25 per hour.
While wage increases will begin phasing in next year, the timeline for implementation depends on facility type and other factors like payer mix. Large health systems and dialysis centers have until 2026 to fully implement the new wage, while rural, independent hospitals and those with high public payer mixes, as well as other clinical facilities, have more time to comply.
The law, which replaces the $15.50 state minimum wage for all workers, is projected to impact over 469K healthcare workers in the state, potentially including 50K who already earn more than $25 per hour but are forecasted to receive wage increases to maintain their pay premiums. Strongly backed by California healthcare unions, the law ultimately received the support of the California Hospital Association on the grounds that it will “create stability and predictability for hospitals” by preempting local wage and compensation measures active in many California cities.
The Gist:On the heels of a tentatively successful labor negotiation with Kaiser Permanente—which would raise the system’s hourly minimum wage to $25—California healthcare unions have flexed their might for another win.
While this new law directly benefits healthcare workers earning less than $25 an hour, itsknock-on effects will extend to those earning above that to avoid pay compression, as well as to workers in other industries that draw from the same labor pool.
The mandated higher pay may provide California healthcare employers with a recruitment edge (and lure talent away from neighboring states), but higher costs will exacerbate the margin challenges plaguing many hospitals in the state.
Using data from Kaufman Hall’s latest National Hospital Flash Report and publicly available investor reports for some of the nation’s largest health systems, the graphic below takes stock of the state of health system margins.
After the median hospital delivered negative operating margins for twelve-straight months, 2023 has made for a positive but slim year so far, with margins hovering around one percent. Amid this breakeven environment, fortunes have diverged between nonprofit and for-profit health systems.
The largest for-profit systems, HCA Healthcare and Tenet Healthcare, posted operating margins of around 10 percent between July 2022 and June 2023, while the three largest nonprofit systems, Kaiser Permanente, CommonSpirit Health, and Ascension, suffered net losses.
Although Kaiser Permanente’s margin bounced back in the first half of this year, CommonSpirit and Ascension’s margins continued to decline, more than doubling the operating losses of the prior six months.
One key to the recent success of the largest for-profit systems is their diversification away from inpatient care.
Case in point: almost half of Tenet’s profits in 2023 have come from its ambulatory division, driven by its United Surgical Partners International (USPI) ambulatory surgery center network, which has posted 40 percent margins over the past several quarters.
Nurses who work for staffing agencies are much more satisfied than their counterparts who serve hospitals, health systems, home healthcare providers and senior living facilities, according to an Oct. 18 report from MIT Sloan Management Review.
Researchers identified 200 of the largest healthcare employers in the U.S., and calculated how highly nurses rate the organization and senior leadership on Glassdoor from the beginning of COVID-19 through June 2023 (view their ranking here).
The five highest-ranked employers in the sample were staffing agencies, according to the report — and higher compensation only accounts for part of nurses’ satisfaction. Researchers analyzed the free text on Glassdoor to determine how positively nurses spoke about 200 topics, and found that nurses spoke more highly of staffing agencies on issues other than pay.
Overall, 75% of nurses’ comments about staffing agencies were positive, compared with 23% of nurses’ comments about health systems.
Staffing agencies have other healthcare employers beat in problem resolution, the researchers found. Seventy-three percent of nurses said staffing agencies resolved problems efficiently, compared to 31% of nurses employed by hospitals and health systems. The difference was even greater when it came to resolving problems effectively — 55% of nurses say staffing agencies do this, compared to 9% of nurses at hospitals and health systems.
Nurses also rated staffing agencies more highly on several measures related to honesty, according to the report. Three-quarters of nurses employed by staffing agencies spoke highly of their organizations’ speed in replying to inquiries; less than one-quarter of nurses employed by hospitals and health systems praised their organization on timely replies. Staffing agencies scored 41 percentage points higher on transparency, 36 points higher on trust and 46 points higher on honesty than their hospital and health system counterparts.
Although nurses employed by staffing agencies also ranked their compensation and work-related stress levels significantly better than nurses employed by hospitals and health systems, the latter took the lead in some metrics. Nurses prefer hospitals and health systems for health and retirement benefits, learning and development opportunities, and connection with colleagues: all “important aspects of organizational life,” according to the report.
“Healthcare systems can learn from staffing agencies, but they can also leverage their own distinctive advantages to attract and retain nurses,” the report says. “Healthcare systems should invest in their comparative advantages and emphasize them when communicating their value proposition to potential and current employees.”
Health systems are increasingly focused on their regional structures, reorganizing leadership to provide oversight most effectively. On Oct. 23, those changes hit the corner office.
Providence is phasing out the CEO role at two of its California hospitals, the Renton, Wash.-based system confirmed to Becker’s. One year ago, Providence’s Northern and Southern California regions came together to create a sole South Division. Now, a single chief executive — Garry Olney, DNP, RN — will oversee operations in the Northern California service area, replacing the CEOs of Napa-based Queen of the Valley Medical Center and Santa Rosa (Calif.) Memorial Hospital.
“This was part of a systemwide restructuring to streamline executive roles so we could preserve more resources for front-line caregivers and become nimbler and more responsive to the times,” the system said in a statement.
Providence isn’t alone in its desire to streamline leadership. Corewell Health East — part of Corewell Health, which has dual headquarters in Grand Rapids and Southfield, Mich. — made seven executive changes within the region, the system confirmed to Becker’s on Oct. 23. The senior vice president of medical group operations was let go, along with two hospital presidents. The region’s COO of acute and post-acute care, Nancy Susick, RN, will take over one hospital in addition to her current duties; the second hospital will be overseen in a dual capacity by Derk Pronger, who already helms another hospital in the region.
The word “streamline” was also used by Chicago-based CommonSpirit, which recently shared plans to lighten its regional load.
“We are also making further changes to streamline the organization, including the consolidation of our operating divisions into five regions from eight, clearly define our market-based focus and strategies and continue to refine our operating model,” CFO Dan Morissette said on an Oct. 12 investor call.
Regional revamps don’t always lead to cuts or “consolidation.” In some cases, they lead to the creation of new roles. Atlanta-based Emory Healthcare recently split its 10 hospitals into two divisions — one for regional hospitals, one for university hospitals — and tapped a president to helm each. Plus, Tampa (Fla.) General Hospital named eight new executives in a C-suite overhaul following the adoption of three Bravera Health hospitals into TGH North.
If the healthcare leaders plan to confront looming challenges, they need to be comfortable with “innovating and disrupting [themselves],” John Couris, president and CEO of Tampa General, told Becker’s.
“The way I would describe this is the last five years was all about foundational work,” Mr. Couris said. “The next five years and beyond is all about transformational work. So we’re shifting from the foundational activity to the transformational activity, and we need an organizational structure and a leadership team that reflects that journey. That’s why we made the changes.”
Hospitals and health systems are seeing some signs of stabilization in 2023 following an extremely difficult year in 2022. Workforce-related challenges persist, however, keeping costs high and contributing to issues with patient access to care. The percentage of respondents who report that they have run at less than full capacity at some time over the past year because of staffing shortages, for example, remains at 66%, unchanged from last year’s State of Healthcare Performance Improvement report. A solid majority of respondents (63%) are struggling to meet demand within their physician enterprise, with patient concerns or complaints about access to physician clinics increasing at approximately one-third (32%) of respondent organizations.
Most organizations are pursuing multiple strategies to recruit and retain staff. They recognize, however, that this is an issue that will take years to resolve—especially with respect to nursing staff—as an older generation of talent moves toward retirement and current educational pipelines fail to generate an adequate flow of new talent. One bright spot is utilization of contract labor, which is decreasing at almost two-thirds (60%) of respondent organizations.
Many of the organizations we interviewed have recovered from a year of negative or breakeven operating margins. But most foresee a slow climb back to the 3% to 4% operating margins that help ensure long-term sustainability, with adequate resources to make needed investments for the future. Difficulties with financial performance are reflected in the relatively high percentage of respondents (24%) who report that their organization has faced challenges with respect to debt covenants over the past year, and the even higher percentage (34%) who foresee challenges over the coming year. Interviews confirmed that some of these challenges were “near misses,” not an actual breach of covenants, but hitting key metrics such as days cash on hand and debt service coverage ratios remains a concern.
As in last year’s survey, an increased rate of claims denials has had the most significant impact on revenue cycle over the past year. Interviewees confirm that this is an issue across health plans, but it seems particularly acute in markets with a higher penetration of Medicare Advantage plans. A significant percentage of respondents also report a lower percentage of commercially insured patients (52%), an increase in bad debt and uncompensated care (50%), and a higher percentage of Medicaid patients (47%).
Supply chain issues are concentrated largely in distribution delays and raw product and sourcing availability. These issues are sometimes connected when difficulties sourcing raw materials result in distribution delays. The most common measures organizations are taking to mitigate these issues are defining approved vendor product substitutes (82%) and increasing inventory levels (57%). Also, as care delivery continues to migrate to outpatient settings, organizations are working to standardize supplies across their non-acute settings and align acute and non-acute ordering to the extent possible to secure volume discounts.
Survey Highlights
98% of respondents are pursuing one or more recruitment and retention strategies
90%have raised starting salaries or the minimum wage
73%report an increased rate of claims denials
71% are encountering distribution delays in their supply chain
70%are boarding patients in the emergency department or post-anesthesia care unit because of a lack of staffing or bed capacity
66% report that staffing shortages have required their organization to run at less than full capacity at some time over the past year
63% are struggling to meet demand for patient access to their physician enterprise
60% see decreasing utilization of contract labor at their organization
44%report that inpatient volumes remain below pre-pandemic levels
32% say that patients concerns or complaints about access to their physician enterprise are increasing
24%have encountered debt covenant challenges during the past 12 months
None of our respondents believe that their organization has fully optimized its use of the automation technologies in which it has already invested
The law, which was heavily backed by healthcare unions, is expected to affect approximately 469,000 healthcare workers and will be phased in over the next several years.
Dive Brief:
California Gov. Gavin Newsom on Friday signed a law raising the minimum wage for thousands of healthcare workers in the state from $15.50 an hour to $25 per hour.
State lawmakers argued in the law’s text that competitive wages are necessary to attract and retain healthcare workers who provide critical services, noting that “even before the COVID pandemic, California was facing an urgent and immediate shortage of healthcare workers, adversely impacting the health and well-being of Californians.”
Although wage increases will begin rolling out next year, the timeline for implementation depends on facility type. Large health systems with more than 10,000 workers and dialysis clinics must implement the law fully by 2026, while rural independent hospitals and those with a high mix of Medi-Cal and Medicare patients have until 2033 to implement the new wage minimums.
Dive Insight:
The law, backed by California healthcare unions, broadly defines healthcare workers as full-time or contract employees of a healthcare facility, including those in roles supporting the provision of healthcare, such as janitors, clerical workers, food service workers and medical billing personnel.
The wage increase is projected to impact approximately 469,000 employees, many of whom are currently living on the margins, according to an analysis from the University of California, Berkeley’s Labor Center.
Newsom signed the bill into law on the same day that Kaiser Permanente unions announced they had secured a tentative $25 per hour minimum wage for over 60,000 California-based Kaiser employees, pending ratification from members. California healthcare workers were represented by SEIU-United Healthcare Workers West president Dave Regan during Kaiser bargaining.
In Senate analyses of the minimum wage bill conducted in May and September, lawmakers said thatSEIU-UHW’s organizing elsewhere in the state had motivated the state-level analysis of pay. The unionspearheaded several similar local ordinances last year, including inLos Angeles and San Diego.
SEIU California, which sponsored the bill, released a statement on Friday saying that raising healthcare workers’ wages is a matter of equity. Three out of four workers who will see increases in wages thanks to the new law are women, and 76% are workers of color, according to SEIU California. Almost half of all healthcare workers affected are Latino, the union said.
“Governor Newsom signed SB 525 into law because he heard our call for change to a status quo that has left us exhausted and struggling to pay our bills,” Dr. Kelley Butler, resident physician at San Francisco General Hospital and member of SEIU California, said in a statement. “I’m proud of our collective advocacy as a union and proud of our Governor for doing right by the California healthcare workforce and the patients it serves.”
The law went through several edits since the beginning of the legislative session to make it more palatable to healthcare facilities, which largely opposed its passage earlier this year. An earlier version of the bill, debated in May, tasked all healthcare providers with instituting the new minimum by June 2025.
The final version of the law has a phase-in approach that grants some workers the new minimum by 2026 and leaves others waiting ten years to reap the full sum. Healthcare facilities that are in financial distress can also apply for a waiver program to temporarily delay payroll hikes. Tribal clinics are excluded from the new pay requirements entirely.
The California Hospital Association, a lobbying organization, ultimately supported the law, saying in a statement that it provided “stability and predictability for hospitals” by providing more reasonable phase-in requirements and “preempting city and county minimum wage measures for 10 years and local compensation measures for six years.”
The dialysis industry also got on board after lawmakers added an amendment which prevents SEIU from pushing for ballot measures targeting dialysis centers. The union’s unsuccessful lobbying for changes in the dialysis industry has cost the healthcare industry over 100 million dollars in recent years, according to reporting from CalMatters.
HENRY KOTULA 