At least five health systems announced changes to executive ranks and administration teams in February and March.
The changes come as hospitals continue to grapple with financial challenges, leading some organizations to cut jobs and implement other operational adjustments. Changes to executive ranks include reorganizing executive responsibilities and executive appointments.
The following changes were announced within the last two months and are summarized below, with links to more comprehensive coverage of the changes.
1. Philadelphia-based Penn Medicine is eliminating administrative positions. The change is part of a reorganization plan to save the health system $40 million annually, the Philadelphia Business Journal reported March 13. Kevin Mahoney, CEO of the University of Pennsylvania Health System, told Penn Medicine’s 49,000 employees last week that changes include the elimination of a “small number of administrative positions which no longer align with our key objectives,” according to the publication. The memo did not indicate the exact number of positions that were eliminated.
2. Sovah Health, part of Brentwood, Tenn.-based Lifepoint Health, has eliminated the COO positions at its Danville and Martinsville, Va., campuses. The responsibilities of both COO roles will now be spread across members of the existing administrative team.
3. Cox Medical Group, a subsidiary of Springfield, Mo.-based CoxHealth, has made several leadership changes to support the health system’s new operating model. The new model is focused on key service lines — such as cardiovascular services, orthopedics and primary care. Four things to know.
4. Valley Health, a six-hospital health system based in Winchester, Va., eliminated 31 administrative positions. The job cuts are part of the consolidation of the organization’s leadership team and administrative roles. They were announced internally on Feb. 28.
5. Roseville, Calif.-based Adventist Health will transition from seven networks of care to five systemwide to reduce costs and strengthen operations, according to a Feb. 15 news release shared with Becker’s. Under the reorganization, the health system will have separate networks for Northern California, Central California, Southern California, Oregon and Hawaii. The reorganization will result in job cuts, including reducing administration by more than $100 million.
Here are 14 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings, Moody’s Investors Service and S&P Global.
1. Ascension has an “AA+” rating and stable outlook with Fitch. The St. Louis-based system’s rating is driven by multiple factors, including a strong financial profile assessment, national size and scale with a significant market presence in several key markets, which produce unique credit features not typically seen in the sector, Fitch said.
2. Berkshire Health has an “AA-” rating and stable outlook with Fitch. The Pittsfield, Mass.-based system has a strong financial profile, solid liquidity and modest leverage, according to Fitch.
3. ChristianaCare has an “Aa2” rating and stable outlook with Moody’s. The Newark, Del.-based system has a unique position with the state’s largest teaching hospital and extensive clinical depth that affords strong regional and statewide market capture, and it is expected to return to near pre-pandemic level margins over the medium term, Moody’s said.
4. Cone Health has an “AA” rating and stable outlook with Fitch. The rating reflects the expectation that the Greensboro, N.C.-based system will gradually return to stronger results in the medium term, the rating agency said.
5. Harris Health System has an “AA” rating and stable outlook with Fitch. The Houston-based system has a “very strong” revenue defensibility, primarily based on the district’s significant taxing margin that provides support for operations and debt service, Fitch said.
6. Johns Hopkins Medicine has an “AA-” rating and stable outlook with Fitch. The Baltimore-based system has a strong financial role as a major provider in the Central Maryland and Washington, D.C., market, supported by its excellent clinical reputation with a regional, national and international reach, Fitch said.
7. Orlando (Fla.) Health has an “AA-” and stable outlook with Fitch. The system’s upgrade from “A+” reflects the continued strength of the health system’s operating performance, growth in unrestricted liquidity and excellent market position in a demographically favorable market, Fitch said.
8. Rady Children’s Hospital has an “AA” rating and stable outlook with Fitch. The San Diego-based hospital has a very strong balance sheet position and operating performance and is also a leading provider of pediatric services in the growing city and tri-county service area, Fitch said.
9. Rush System for Health has an “AA-” and stable outlook with Fitch. The Chicago-based system has a strong financial profile despite ongoing labor issues and inflationary pressures, Fitch said.
10. Salem (Ore.) Health has an “AA-” rating and stable outlook with Fitch. The system has a “very strong” financial profile and a leading market share position, Fitch said.
11. TriHealth has an “AA-” rating and stable outlook with Fitch. The rating reflects the Cincinnati-based system’s strong financial and operating profiles, as well as its broad reach, high-acuity services and stable market position in a highly fragmented and competitive market, Fitch said.
12. UCHealth has an “AA” rating and stable outlook with Fitch. The Aurora, Colo.-based system’s margins are expected to remain robust, and the operating risk assessment remains strong, Fitch said.
13. University of Kansas Health System has an “AA-” rating and stable outlook with S&P Global. The Kansas City-based system has a solid market presence, good financial profile and solid management team, though some balance sheet figures remain relatively weak to peers, the rating agency said.
14. Willis-Knighton Health System has an “AA-” rating and stable outlook with Fitch. The Shreveport, La.-based system has a “dominant inpatient market position” and is well positioned to manage operating pressures, Fitch said.
Workforce problems in U.S. hospitals are troublesome enough for the American College of Healthcare Executives to devote a new category to them in its annual survey on hospital CEOs’ concerns. In the latest survey, executives identified “workforce challenges” as the No. 1 concern for the second year in a row.
Financial challenges, which consistently held the top spot for 16 years in a row until 2021, were listed the second-most pressing concern in the American College of Healthcare Executives’ annual survey.
Although workforce challenges were not seen as the most pressing concern for 16 years, they rocketed to the top quickly and rather universally for healthcare organizations in the past two years. Most CEOs (90 percent) ranked shortages of registered nurses as the most pressing within the category of workforce challenges, followed by shortages of technicians (83 percent) and burnout among non-physician staff (80 percent).
Here are the most concerning issues hospital CEOs ranked in 2022, along with the score of how pressing CEOs find each issue.
1. Workforce challenges (includes personnel shortages and staff burnout, among other issues) — 1.8
2. Financial challenges — 2.8
3. Behavioral health and addiction issues — 5.2
4. Patient safety and quality — 5.9
5. Governmental mandates — 5.9
6. Access to care — 6.0
7. Patient satisfaction — 6.6
8. Physician-hospital relations — 7.6
9. Technology — 7.7
10. Population health management — 8.6
11. Reorganization (mergers and acquisitions, partnerships and restructuring) — 8.7
Within financial challenges, most CEOs (89 percent) ranked increasing costs for staff and supplies as the most pressing, followed by operating costs (66 percent) and Medicaid reimbursement (63 percent). CEOs are less concerned about price transparency and moving away from fee-for-service.
Seventy-eight percent of CEOs ranked lack of appropriate facilities/programs as most pressing within the category of behavioral health and addiction issues. That was followed by lack of funding for addressing behavioral health and addiction issues (77 percent).
The results are based on a survey administered to CEOs of community hospitals (non-federal, short-term, non-specialty hospitals). ACHE asked respondents to rank 11 issues affecting their hospitals in order of how pressing they are. Results are based on responses from 281 executives.
Roseville, Calif.-based Adventist Health plans to go from seven networks of care to five systemwide to reduce costs and strengthen operations, according to a Feb. 15 news release shared with Becker’s.
Under the reorganization, Adventist Health will have separate networks for Northern California, Central California, Southern California, Oregon and Hawaii.
“Reducing the number of care networks strengthens our operational structure and broadens the meaning and purpose of our network model as well as the geographical span of one Adventist Health,” Todd Hofheins, COO of Adventist Health, said in the release. “This also reduces overhead and administrative costs.”
The reorganization will result in job cuts, including reducing administration by more than $100 million.
“Our commitment to rural and urban healthcare remains steadfast, and we are expanding to other locations to invest and transform the integrated delivery of care,” Kerry Heinrich, president and CEO of Adventist Health, said in the release.
Specifically, the health system has a recently approved affiliation agreement for Mid-Columbia Medical Center in The Dalles, Ore., to join Adventist Health, the health system said. The agreement is pending final regulatory and state approvals.
Meanwhile, Adventist Health filed a Worker Adjustment and Retraining Notification Act notice with California officials Feb. 15.
Adventist Health will eliminate job functions and positions for employees at its corporate office campus along with some remote roles, the notice states.
Layoffs from Adventist Health began Feb. 1 and will continue into April, according to the notice.
Adventist Health said it has provided all affected employees 60 days’ written notice of the layoff. The health system expects about 59 employees to be separated from employment with Adventist Health.
Employees affected by the layoffs include administrative directors, directors, managers and project managers, among others.
“We recognize that these changes impact people’s lives and want to respect each affected individual,” Joyce Newmyer, chief people officer for Adventist Health, said in the health system’s release. “We will make every effort to identify other opportunities for team members impacted.”
Here are four health systems that recently had their credit rating upgraded by Fitch Ratings, Moody’s Investors Service or S&P Global Ratings:
1. Cooper University Health Care received upgrades from both S&P and Moody’s. S&P upgraded the Camden, N.J.-based system from “BBB+” to “A-,” praising Cooper for its focus on cost containment, revenue improvement, expanding market share and developing key services to gain more tertiary referrals and limit outpatient migration to Philadelphia academic medical centers.
Moody’s raised the system’s bond ratings from “Baa1” to “A3” and said it expects Cooper’s operating margins will be maintained through execution of its performance improvement plan and strong growth in key service lines.
2. Loma Linda (Calif.) University Medical Center’s rating was raised to “BB+” from “BB” by Fitch. “The upgrade … incorporates LLUMC’s major new hospital, which is now open, and the system has been operating in their new environment for more than one year, removing a considerable risk factor,” Fitch said in a report.
3. Mercy Health’s credit rating was upgraded from “A-” to “A” by Fitch. The rating agency said the Rockford, Ill.-based system’s operating profile is expected to remain strong in the longer term.
4. Orlando (Fla.) Health’s rating was upgraded to “AA-” from “A+” by Fitch. The ratings agency said in a report the bump “reflects the continued strength of OHI’s operating performance, growth in unrestricted liquidity and excellent market position in a demographically favorable market.”
Here are 30 health systems with strong operational metrics and solid financial positions in 2022, according to reports from Fitch Ratings and Moody’s Investors Service.
1. Advocate Aurora Health has an “AA” rating and a stable outlook with Fitch. The health system, dually headquartered in Milwaukee and Downers Grove, Ill., has a strong financial profile and a leading market position over a broad service area in Illinois and Wisconsin, Fitch said. The health system’s fundamental operating platform is strong, the credit rating agency said.
2. Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The Morristown, N.J.-based health system has strong operating performance and liquidity metrics, Moody’s said. The credit rating agency expects Atlantic Health System to sustain strong performance to support capital spending.
3. Banner Health has an “AA-” rating and stable outlook with Fitch. The Phoenix-based health system’s core hospital delivery system and growth of its insurance division combine to make it a successful, highly integrated delivery system, Fitch said. The credit rating agency said it expects Banner to maintain operating EBITDA margins of about 8 percent on an annual basis, reflecting the growing revenues from the system’s insurance division and large employed physician base.
4. BayCare has an “AA” rating and stable outlook with Fitch. The 14-hospital system based in Clearwater, Fla., has excellent liquidity and operating metrics, which are supported by its leading market position in a four-county area, Fitch said. The credit rating agency expects strong revenue growth and cost management to sustain BayCare’s operating performance.
5. Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The Cincinnati-based health system has a broad geographic footprint as one of the five largest Catholic health systems in the U.S., a good payer mix and a leading or near-leading market share in eight of its 11 markets in the U.S., Fitch said.
6. Bryan Health has an “AA-” rating and stable outlook with Fitch. The Lincoln, Neb.-based health system has a leading and growing market position, very strong cash flow and a strong financial position, Fitch said. The credit rating agency said Bryan Health has been resilient through the COVID-19 pandemic and is well-positioned to accommodate additional strategic investments.
7. CaroMont Health has an “AA-” rating and stable outlook with Fitch. The Gastonia, N.C.-based system has a leading market position in a growing services area and a track record of good cash flow, Fitch said.
8. Christiana Care Health System has an “Aa2” rating and stable outlook with Moody’s. The Newark, Del.-based system has a unique position as the state’s largest teaching hospital and extensive clinical depth that affords strong regional and statewide market capture, and it is expected to return to near pre-pandemic level margins over the medium-term, Moody’s said.
9. Cone Health has an “AA” rating and stable outlook with Fitch. The Greensboro, N.C.-based health system has a leading market share and a favorable payer mix, Fitch said. The health system’s broad operating platform and strategic capital investments should enable it to return to stronger operating results, the credit rating agency said.
10. Deaconess Health System has an “AA” rating and stable outlook with Fitch. The Evansville, Ind.-based system has a leading market position in its primary service area and a favorable payer mix, Fitch said. The ratings agency said it expects Deaconess’ operating EBITDA margins to improve and stabilize around 10 percent by 2023, reflecting strong volumes and focus on operating efficiencies.
11. El Camino Health has an “AA-” rating and stable outlook with Fitch. El Camino Health, which includes hospital campuses in Los Gatos, Calif., and Mountain View, Calif., has a solid market share in a competitive market and a stable payer mix, Fitch said. The credit rating agency said El Camino Health’s balance sheet provides moderate financial flexibility.
12. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics, a leading market position and an expanding operating platform in its service area, Fitch said. The credit rating agency expects the health system to return to strong operating performance as it emerges from disruption related to the COVID-19 pandemic.
13. Hackensack Meridian Health has an “AA-” rating and stable outlook with Fitch. The Edison, N.J.-based health system has shown consistent year-over-year increases in market share and has a solid liquidity position, Fitch said.
14. Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The Falls Church, Va.-based health system has a consistently strong operating cash flow margin and ample balance sheet resources, Moody’s said. Inova’s financial excellence will remain undergirded by its favorable regulatory and economic environment, the credit rating agency said.
15. Intermountain Healthcare has an “Aa1” rating and stable outlook with Moody’s. The Salt Lake City-based health system has exceptional credit quality, which will continue to benefit from its leading market position in Utah, Moody’s said. The credit rating agency said the health system’s merger with Broomfield, Colo.-based SCL Health will also give Intermountain greater geographic reach.
16. Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The Boston-based health system has an excellent clinical reputation, good financial performance and strong balance sheet metrics, Moody’s said. The credit rating agency said it expects Mass General Brigham to maintain a strong market position and stable financial performance.
17. Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The credit rating agency said Mayo Clinic’s strong market position and patient demand will drive favorable financial results. The Rochester, Minn.-based health system “will continue to leverage its excellent reputation and patient demand to continue generating favorable operating performance while maintaining strong balance sheet ratios,” Moody’s said.
18. MemorialCare has an “AA-” rating and stable outlook with Fitch. The Fountain Valley, Calif.-based health system has excellent leverage metrics and a strong financial profile, Fitch said. The credit rating agency said it expects the system’s leverage metrics to remain strong over the next several years.
19. Methodist Health System has an “Aa3” rating and stable outlook with Moody’s. The Dallas-based system has strong operating performance, and investments in facilities have allowed it to continue to capture more market share in the fast-growing Dallas-Fort Worth, Texas, area, Moody’s said. The credit rating agency said it expects Methodist Health System’s strong operating performance and favorable liquidity to continue.
20. OhioHealth has an “AA+” rating and stable outlook with Fitch. The Columbus, Ohio-based system has an exceptionally strong credit profile, broad regional operating platform and leading market position in both its competitive two-county primary service area and broader 47-county total service area, Fitch said.
21. Parkview Health has an “Aa3” rating and stable outlook with Moody’s. The Fort Wayne, Ind.-based system has a leading market position with expansive tertiary and quaternary clinical services in Northeastern Indiana and Northwestern Ohio, Moody’s said.
22. Presbyterian Healthcare Services has an “Aa3” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system is the largest in the state, and it has strong revenue growth and a healthy balance sheet, Moody’s said. The credit rating agency said it expects the health system’s balance sheet and debt metrics to remain strong.
23. Rady Children’s Hospital has an “AA” rating and stable outlook with Fitch. The San Diego-based hospital has a very strong balance sheet position and operating performance, and it is also a leading provider of pediatric services in the growing city and tri-county service area, Fitch said.
24. Rush Health has an “AA-” rating and stable outlook with Fitch. The Chicago-based health system has a strong financial profile and a broad reach for high-acuity services as a leading academic medical center, Fitch said. The credit rating agency expects Rush’s services to remain profitable over time.
25. Stanford (Calif.) Health Care has an “AA” rating and stable outlook with Fitch. The health system has extensive clinical reach in a competitive market and its financial profile is improving, Fitch said. The health system’s EBITDA margins rebounded in fiscal year 2021 and are expected to remain strong going forward, the crediting rating agency said.
26. ThedaCare has an “AA-” rating and stable outlook with Fitch. The Neenah, Wis.-based system has a focused strategy, strong financial profile and robust market share, Fitch said.
27. Trinity Health has an “AA-” rating and stable outlook with Fitch. The Livonia, Mich.-based system’s large size and market presence in multiple states disperses risk and the long-term ratings incorporate the expectation that Trinity will return to sustained stronger operating EBITDA margins.
28. UnityPoint Health has an “AA-” rating and stable outlook with Fitch. The Des Moines, Iowa-based health system has strong leverage metrics and cash position, Fitch said. The credit rating agency expects the health system’s balance sheet and debt service coverage metrics to remain robust.
29. University of Chicago Medical Center has an “AA-” rating and stable outlook with Fitch. The credit rating agency said it expects University of Chicago Medical Center’s capital-related ratios to remain strong, in part because of its broad reach of high-acuity services.
30. Yale New Haven (Conn.) Health has an “AA-” rating and stable outlook with Fitch. The health system’s turnaround efforts, brand recognition and market presence will help it return to strong operating results, Fitch said.
Hospitals experienced a slight boost to operating margins in November, but not enough to restore the median negative margins that persisted for 2022 to date.
Kaufman Hall’s December “National Flash Hospital Report“ — based on data from more than 900 hospitals — found hospitals’ median operating margin was -0.2 percent through November, a slight improvement from the median of -0.3 percent recorded a month prior.
A 1 percent decline in expenses from October to November drove the eleventh-hour improvement to margins and tipped the scales on hospitals’ relatively flat revenue. Additionally, hospitals saw labor expenses decrease 2 percent in November, potentially driven by less reliance on contract labor.
The median -0.2 percent margin recorded in November 2022 marks a 44 percent decline for margins in 22 year-to-date compared to 2021 year-to-date. Kaufman Hall’s index shows hospitals’ median monthly margins have been in the red throughout 2022, starting with the -3.4 percent recorded in January, driven by the omicron surge. November is tied with September as hospitals’ best month of the year, with both sharing a median margin of -0.2 percent.
Outpatient care marks one of the brighter spots for hospitals’ finances, with outpatient revenue up 10 percent year-over-year while inpatient revenue was flat over the same time period.
“The November data, while mildly improved compared to October, solidifies what has been a difficult year for hospitals amidst labor shortages, supply chain issues and rising interest rates,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said. “Hospital leaders should continue to develop their outpatient care capabilities amid ongoing industry uncertainty and transformation.”
It covers 589,901 healthcare workers and 166,087 registered nurses from 272 facilities and 32 states. Participants were asked to report data on turnover, retention, vacancy rates, recruitment metrics and staffing strategies from January to December 2021.
The survey found a wide range of helpful figures for understanding the financial fallout of one of healthcare’s hardest labor disruptions:
The average hospital lost $7.1 million in 2021 to higher turnover rates.
The average hospital loses $5.2 to $9 million on RN turnover yearly.
The average turnover cost for a staff RN is $46,100, up more than 15 percent from the 2020 average.
The average hospital can save $262,300 per year for each percentage point it drops from its RN turnover rate.
To improve margins, hospitals need to control labor costs by decreasing dependence on travel and agency staff, but only 22.7 percent anticipate being able to do so.
For every 20 travel RNs eliminated, a hospital can save $4.2 million on average.
In the past 5 years, the average hospital turned over 100.5 percent of its workforce:
In 2021, hospitals set a goal of reducing turnover by 4.8 percent. Instead, it increased 6.4 percent and ranged from 5.1 percent to 40.8 percent. The current average hospital turnover rate nationally is 25.9 percent, according to the report.
While 72.6 percent of hospitals have a formal nurse retention strategy, less than half of those (44.5 percent) have a measurable goal.
Overall, 55.5 percent of hospitals do not have a measurable nurse retention goal.
Retirement is the number four reason staff RNs leave, and it is expected to remain a primary driver through 2030. More than half (52.8 percent) of hospitals today have a strategy to retain senior nurses. In 2018, only 21.6 percent had one.
Historically, RN turnover has trended below the hospital average across all staff. For the first time since conducting the survey, this is no longer true:
In the past five years, the average hospital turned over 95.7 percent of its RN workforce.
Close to a third (31.0 percent) of all newly hired RNs left within a year, with first year turnover accounting for 27.7 percent of all RN separations. Given the projected surge in retirements, expect to see the more tenured groups edge up creating an inverted bell curve.
Operating room RNs continue to be the toughest to recruit, while labor and delivery RNs are trending easier to recruit than in the year prior.
Hospitals are experiencing a dramatically higher RN vacancy rate (17 percent) compared to last year’s rate of 9.9 percent.
The vast majority (81.3 percent) reported a vacancy rate higher than 10 percent.
Financial analysts have said that 2022 may have been the worst year for hospital finances in decades. This year looks like it will be yet another year of financial underperformance, with rural providers in especially dire circumstances.
What’s driving this bleak financial reality? It’s “primarily an expense story,” said Erik Swanson, a senior vice president at Kaufman Hall‘s data analytics practice.
“Growth in expenses has vastly outpaced growth in revenues — since pre-pandemic levels since last year, and even the year prior — such that margins are ultimately being pushed downward. And hospitals’ median operating margin is still below zero on a cumulative basis,” he declared, referring to 2021 and 2020.
Here’s some context about how dismal this situation is: Even in 2020, a year in which hospitals saw extraordinary losses during the first few months of the pandemic, they still reported operating margins of 2%.
What’s even more disconcerting is that hospitals are underperforming financially pretty much across the board, Swanson said.
Even Kaiser Permanente, one of the country’s largest health systems with an integrated delivery model, reported a $1.5 billion loss for the third quarter of 2022.
Rural hospitals are in even worse shape, but more on that below.
Other hospitals have been forced to shutter service lines to offset these financial losses. Some are also turning to integration and consolidation.
For example, Hermann Area District Hospital in Missouri said last month that it is seeking a “deeper affiliation” with Mercy Health or another provider. This announcement came after the hospital eliminated its home health agency as a cost-cutting measure. In December, the hospital projected a loss of $2 million for 2022.
We can also look at the mega-merger between Atrium Health and Advocate Aurora Health, which was completed last month. The deal, which is designed for cost synergy, creates the fifth-largest nonprofit integrated health system in the U.S.
The merger was finalized one day after North Carolina Attorney General Josh Stein expressed concern about how the deal could impact rural communities. He said that while he didn’t have a legal basis within his office’s limited statutory authority to block the deal, he was worried that it could further restrict access to healthcare in rural and underserved communities.
Stein brings up an extremely valid concern. Rural hospitals’ dismal financial circumstances are becoming more and more worrisome — in fact, about 30% of all rural hospitals are at risk of closing in the near future, according to a recent report from the Center for Healthcare Quality and Payment Reform (CHQPR).
A crucial reason for this is that it is more expensive to deliver healthcare in rural areas — usually because of smaller patient volumes and higher costs for attracting staff. Another factor is that payments rural hospitals receive from commercial health plans isn’t enough to cover the cost of delivering care to patients in rural areas, said Harold Miller, CEO of CHQPR.
“Many people assume that private commercial insurance plans pay more than Medicare and Medicaid. But for small rural hospitals, the exact opposite is true,” he said. “In many cases, Medicare is their best payer. And private health plans actually pay them well below their costs — well below what they pay their larger hospitals. One of the biggest drivers of rural hospital losses is the payments they receive from private health plans.”
In Miller’s view, rural hospitals perform two main functions: taking care of sick people in the hospital and being there for people in case they need to go to the hospital.
To fulfill the latter job, rural hospitals must operate 24/7 emergency rooms. These hospitals get paid when there’s an emergency, but not when there isn’t — even though the hospital is incurring costs by operating and staffing these units.
“Rural hospitals have a physician on duty 24/7 to be available for emergencies. But they don’t get paid for that by most payers. Medicare does pay them for that, but other payers don’t. If the hospital is doing two different things, we should be paying them for both of those things. Hospitals should be paid for what I refer to as ‘standby capacity,’” Miller said.
He bolstered his argument by pointing to these analogies: Do we only pay firefighters when there’s a fire? Do we only pay police officers when there’s a crime?
It’s also important to remember that rural hospitals are in the midst of transitioning to a post-pandemic environment, now without the pandemic-era financial assistance they received from the government, said Brock Slabach, chief operations officer at the National Rural Health Association.
“Rural providers are looking to move into the future without the benefit of those extra payments. And they’re in an environment of really high inflation. It’s over 8%, and for some goods and services in the healthcare sector, that’s going to be over 20% in terms of increased prices. Wages and salaries have also gone up significantly. But patient volumes have maintained below average or average. That all presents a huge challenge,” Slabach said.
Rural providers across the country are dealing with the stressors Slabach described and clamoring for more government help. For example, the Michigan Health & Hospital Association sought more money from the state last month after having to take 1,700 beds offline.
Many rural hospitals can’t escape their fate. From 2010 to 2021, there were 136 rural hospital closures. There were only two closures in 2021, and Slabach said 2022 produced a similarly low number. But these low totals are due to government relief, he explained. Slabach said he’s expecting an increase in rural hospital closures in 2023.
When a rural hospital closes, it means community members have to travel far distances for emergency or inpatient care. Miller pointed out another problem: in many rural communities, the hospital is the only place people can go to get laboratory or imaging work done. The hospital might also be the only source of primary care for the community. Shuttering these hospitals would be a massive blow to rural Americans’ healthcare access.
In the face of these potentially devastating blows to patient access, financial analysts’ outlook is bleak.
Higher inflation and costly labor expenses will continue to have negative effects on hospitals — both rural and urban — in 2023, according to an analysis from Moody’s. Expenses will also continue to increase due to supply chain bottlenecks, the need for more robust cybersecurity investments and longer hospital stays due to higher levels of patient acuity.
All of this doom and gloom begs the question — are any hospitals doing well financially?
The answer is yes, a select few. Let’s look at the three largest for-profit health systems in the nation — Community Health Systems, HCA Healthcare and Tenet Healthcare. As of 2020, these three public health systems accounted for about 8% of hospital beds in the U.S.
These three systems all had positive operating margins for the majority of the pandemic, including most recently in the third quarter of 2022.
Large public health systems have shareholders to report to and stock prices to worry about. Does this mean they’re more likely to deny care to patients who can’t afford it while other hospitals pick up the slack?
Slabach said it’s tough to say.
“Obviously, hospitals try to mitigate their exposure to risk when it comes to taking care of patients. Most hospitals do a really good job of providing services and care to people who don’t have insurance or don’t have the means to pay. But that gets stressed in this current financial environment. So indeed, there may be instances where what you suggested might happen, but it’s not because they want to deny services or deny care. It’s because they have a bigger picture they have to maintain,” Slabach said.
And the big picture involving dollar signs for hospitals looks pretty bleak in 2023.
The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.
In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica Westhead, Colin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.
As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting advisory.com/HealthCare2023.
HENRY KOTULA 