The percentage of healthcare organizations with an internal minimum wage of $15 or higher increased significantly over the last year, according to the “2022 Health Care Staff Compensation Survey” from SullivanCotter.
In 2021, less than 30 percent of healthcare organizations had an internal minimum wage of $15 per hour or more; this year, nearly 70 percent do. Some health systems are increasing the internal minimum wage to stay competitive amid staffing shortages and rising inflation. Others are increasing hourly rates as a result of union negotiations.
Health systems reported large increases in overall staff salaries, wages and benefits this year, and many expect to see increases in 2023 as well.
Here is how the internal minimum wage rates changed over the last year:
1. Less than $10 per hour 2021: 2.9 percent 2022: 2.2 percent
2. $10 per hour 2021: 14.7 percent 2022: 5 percent
3. $11 per hour 2021: 13.7 percent 2022: 3.9 percent
4. $12 per hour 2021: 12.7 percent 2022: 7.8 percent
5. $13 per hour 2021: 12.7 percent 2022: 6.1 percent
6. $14 per hour 2021: 14.7 percent 2022: 5.6 percent
7. $15 per hour 2021: 26.5 percent 2022: 53.9 percent
8. More than $15 per hour 2021: 2 percent 2022: 15.6 percent
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.
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.
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.
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?
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.
A number of health systems experienced downgrades to their financial ratings in recent weeks amid ongoing operating losses, declines in investment values and challenging work environments.
Here is a summary of recent ratings since Becker’s last roundup Nov. 15:
The following systems experienced downgrades:
Adventist Health (Roseville, Calif.): Saw a downgraded long-term credit rating on bonds it holds, declining from “A” (negative) to “A-” (stable) by S&P Global Ratings.
The December downgrade follows a 2021 downgrade from Fitch Ratings from “A+” to “A.” That downgrade reflected “a series of one-time events and the lingering deleterious impact from the novel coronavirus” which “resulted in lower than anticipated operating EBITDA margins,” Fitch said. In November, Fitch added to this assessment by downgrading Adventist’s outlook from stable to negative, reflecting “continued negative operational pressure.”
The group, which operates 23 hospitals in California, Hawaii and Oregon, was also assigned an “A” rating by Fitch to 2022 bonds and other outstanding debt.
Catholic Health (Buffalo, N.Y.): The group was downgraded on debt from “B1” to “Caa2” by Moody’s and is in danger of defaulting on its covenants.
The nonprofit health system, which serves residents in Western New York with four acute care hospitals and several other facilities, saw its rating drop in November on approximately $364 million of debt.
Duke University Health System (Durham, N.C.): Downgraded to an “AA-” credit rating by Fitch Ratings.
The December downgrade comes amid concern over Duke’s planned integration of the Private Diagnostic Clinic, a for-profit medical group with more than 1,800 physicians.
The rating, reduced from “AA,” applies both to specific bonds the group holds and to its overall issuer default rating. In addition to the integration of the Private Diagnostic Clinic, Fitch also cited concern over macro issues such as labor and inflationary pressures, which have helped to drag down operating results for the health group.
Main Line Health (Radnor Township, Pa.): – Had its bond rating downgraded to “A1” from “Aa3” by Moody’s.
The December downgrade reflects a multiyear trend of weak operating performance and expectations of tepid progress into 2023, Moody’s said.
In addition to Main Line’s revenue bond rating declining, its outlook has been revised to stable from negative at the lower rating. The hospital group has approximately $651 million in outstanding debt, Moody’s said.
Prime Healthcare (Ontario, Calif.): The group was downgraded on probability of default rating to “B2-PD” from “B1-PD” as well as its ratings of the system’s senior secured notes to “B3” from “B2” by Moody’s.
Moody’s also revised the outlook in November to negative from stable because it projects operating expenses will continue to pressure the 45-hospital system’s profitability in the near term, presenting challenges for “the company’s pace of deleveraging,” according to a Nov. 18 news release.
Westchester County Health Care Corp. and Charity Health System (Valhalla, N.Y): The group was downgraded from “Baa2” to “Baa3” by Moody’s.
The December downgrade for CHS is based on WCHCC’s legal guarantee to pay debt service on CHS’ Series 2015 bonds, if CHS is unable. The outlook for both systems remains negative with WCHCC and CHS having $773 million and $127 million of debt, respectively, at the end of fiscal year 2021, Moody’s said.
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.
Here are 10 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service.
1. Allina Health System has an “AA-” rating and a stable outlook with Fitch. The Minneapolis-based system is the inpatient market share leader in a highly competitive market and has a strong relation with payers in the market, Fitch said.
2. 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.
3. 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.
4. 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 is expected to return to near pre-pandemic level margins over the medium-term, Moody’s said.
5. 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.
6. OhioHealth has a “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.
7. 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.
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. 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.
10. 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 and the long-term ratings incorporate the expectation that Trinity will return to sustained stronger operating EBITDA margins.
Recent reports have raised concerns about the financial stability of hospitals amidst disruptions caused by the COVID-19 pandemic and the looming prospect of an economic recession.
Large amounts of government relief helped prop up hospital margins in 2020 and 2021. However, industry reports suggest that the outlook for hospitals and health systems has deteriorated in 2022 due to the ongoing effects of the pandemic (such as labor shortages), decreases in government relief, and broader economic trends that have led to rising prices and investment losses. According to at least one account, 2022 may be the worst financial year for hospitals in decades. These challenges could force hospitals to take steps to increase efficiency but may also result in price increases or cost-cutting measures that impair patient access or care quality. Against this backdrop,industrystakeholders have asked Congress to provide additional fiscal relief to hospitals and to stop scheduled Medicare payment reductions.
To provide context for these policy discussions, we evaluated the financial performance of the three largest for-profit health systems in the country—HCA Healthcare (“HCA”), Tenet Healthcare Corporation (“Tenet”), and Community Health Systems (CHS)—which collectively accounted for about 8 percent of community hospital beds in the US in 2020.1 These three systems are publicly traded, meaning that we were able to acquire timely financial data about these systems through their reports to the Securities and Exchange Commission (SEC), as well as data on their stock prices (see Methods for additional details).
Operating margins among all three large health systems were positive and exceeded pre-pandemic levels for the majority of the pandemic, including most recently in the third quarter of 2022.
Operating margins reflect the profit margins earned on patient care and other operations of a given health system—such as from gift shops, parking, and cafeterias—and incorporate government COVID-19 relief funds.2 Our definition of operating margins excludes income taxes and nonrecurring revenues and expenses, such as from the sale of facilities. HCA and Tenet had positive operating margins throughout the pandemic, and CHS had positive operating margins in all but two quarters of the pandemic (with one of those quarters being at the very beginning of the pandemic). HCA has had operating margins of at least 10 percent during the majority of the pandemic (9 out of 11 quarters). In other words, HCA’s revenue from patient care and other operations exceeded operating expenses by at least 10 percent for most of the pandemic. Tenet has had operating margins of at least 5 percent for the majority of the pandemic (9 out of 11 quarters), while CHS’s operating margins have been lower (less than 5% for 9 out of 11 quarters). CHS had lower margins than the other systems before the pandemic as well.
For all three systems, operating margins have exceeded pre-pandemic (2019) levels for most of the pandemic (9 out of 11 quarters), including the last quarter of our analysis (the third quarter of 2022), despite recent decreases in operating margins. HCA and Tenet dipped below their 2019 operating margins during two quarters of 2020, and CHS fell below their 2019 operating margins during the first quarter of 2020 and the second quarter of 2022 before increasing again. As of the third quarter of 2022, operating margins were 11.4 percent for HCA, 8.4 percent for Tenet, and 1.2 percent for CHS.
Stock prices increased and then decreased during the pandemic; HCA and Tenet stock prices have increased overall since January 2020 while CHS stock prices have decreased.
Stock prices generally reflect investors’ evaluation of the future earnings potential of a given company. Stock prices increased dramatically during the first 1.5 to 2 years of the pandemic. At their heights, HCA stock prices had increased by 87.9 percent, Tenet stock prices had increased by 153.8 percent, and CHS stock prices had increased by 383.1 percent relative to January 2020.
Stock prices have also decreased substantially in 2022—in line with broader economic trends—and especially so among Tenet and CHS. As of November 8, 2022, HCA and Tenet stock prices have increased overall relative to January 2020 (by 44.6% and 12.6%, respectively).3 CHS stock prices have decreased by 11.5% since January 2020, though CHS has also experienced longstanding financial challenges thatpredate the pandemic. For purposes of comparison, HCA stock prices increased by a much greater amount than the S&P 500 during this period (44.6% versus 16.8%), while the S&P 500 slightly outperformed Tenet stock (16.8% versus 12.6%) and significantly outperformed CHS stock (16.8% versus -11.5%).
As of December 2, 2022, the majority of market analysts followed by MarketWatch were bullish on HCA and Tenet stock (with 18 buy, 3 overweight, and 5 hold recommendations for HCA stock and 14 buy, 2 overweight, and 4 hold recommendations for Tenet stock) and neutral about CHS stock (with 8 hold and 4 buy recommendations); none of the analysts rated these stocks as “sell” or “underweight.”
Industry reports have suggested that hospitals had high margins in 2020 and 2021 but have faced significant financial challenges in 2022. Our analysis adds nuance to this discussion. So far this year, operating margins among the three largest for-profit health systems in the country have met or exceeded pre-pandemic levels. HCA and Tenet in particular have had high operating margins. CHS had negative operating margins in the second quarter of 2022, and its stock prices decreased overall from January 2020 to November 2022, but its financial challenges precede the pandemic. While some hospitals are struggling in the current environment—with high inflation and the ongoing burdens posed by COVID-19, flu, and respiratory syncytial virus (RSV)—our results indicate that the largest for-profit systems have had operating margins that exceed pre-pandemic levels.
Private equity has piled into healthcare in recent years, but one company’s recent moves have some questioning whether it belongs in the industry.
Los Angeles-based Prospect Medical Holdings has come under fire for shuttering hospitals and service lines across multiple states after paying itself and shareholders $457 million from a $1.1 billion loan in 2018, CBS News reported Dec. 6. The company paid the loan by selling assets to a healthcare real estate trust.
Prospect Medical then turned around and leased the same assets from the trust, resulting in $35 million in annual rent charges.
The company began cutting services earlier in 2022 at the 168-bed Upper Darby, Pa.-based Delaware County Memorial, the report said. The hospital’s emergency department closed in November.
“What they’ve done is extremely evil, in my words,” emergency nurse Angela Neopolitano, who worked at Delaware County Memorial for 41 years, told CBS News. “To gain a dollar, you maybe destroyed lives, maybe even ended lives, because they can’t get the help they need.”
Paramedics in the hospital’s system at one point found that the credit cards used to refuel their ambulances had been disabled because Prospect Medical “didn’t pay their bill,” Ms. Neopolitano told CBS News.
Delaware County officials said Prospect Medical told them labor costs, inflation and strain from the pandemic all fed into its decision to cut services, the report said.
“I had the sense they were not giving us all the information,” county official Monica Taylor told CBS News.
The Pennsylvania Office of the Attorney General has filed a petition seeking to have Prospect Medical held in contempt and fined $100,000 per day for violating a court order prohibiting the hospital’s closure pending further order by the court.
Prospect Medical has said it plans to convert Delaware County Memorial into a 100-bed behavioral health facility, the report said.