Category Archives: Operating Expenses

HOSPITALS SEE NEGATIVE MARGINS FOR SIXTH CONSECUTIVE MONTH

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https://www.healthleadersmedia.com/finance/hospitals-see-negative-margins-sixth-consecutive-month

Expenses are still weighing heavily on hospitals, health systems, and physician’s practices as the cost of care continues to rise.

Hospitals, health systems, and physician’s practices are still struggling under the weight of significant financial pressure, that the rise in patient volume and revenue can’t seem to outweigh.

The increase in patient volume and revenue has not been able to offset the historically high operating margins these organizations are facing, according to data from Kaufman Hall’s National Hospital Flash Report and Physician Flash Report. Hospitals, health systems, and physician’s practices dealt with negative margins in June for the sixth consecutive month this year.

“To say that 2022 has challenged healthcare providers is an understatement,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in an email report. “It’s unlikely that hospitals and health systems can undo the damage caused by the COVID-19 waves of earlier this year, especially with material and labor costs at record highs this summer.”

The median Kaufman Hall year-to-date operating margin index for hospitals was -0.09% through June, for the sixth month of cumulative negative actual operating margins. However, the median change in operating margin in June was up 30.8% compared to May, but down 49.3% from June 2021.

Hospital revenues for June continued to trend upward, even as volumes evened out, according to the Kauffman Hall data. Organizations saw a 2.1% drop in patient length of stay. Both patient days and emergency department visits each dropped by 2.6% in June when compared to May. Hospital’s gross operating revenue was up 1.2% in June from May.

Expenses have been dragging down hospital margins for months, however, June saw a slight month-over-month improvement as total hospital expenses dropped 1.3%, despite this, year-over-year expenses are still up 7.5% from June 2021. Physician practices saw a drop in provider compensation, according to the Kaufman Hall data, however, this wasn’t enough to offset expenses. The competitive labor market for healthcare support staff resulted in a new high for total direct expense per provider FTE in Q2 2022 of $619,682—up 7% from the second quarter of 2021 and 12% from the second quarter of 2020.

“Given the trends in the data, physician practices need to focus on efficiency in the second half of 2022,” Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall, said in the email report. “Amid historically high expenses, shifting some services away from physicians to advanced practice providers like nurse practitioners or physician assistants could help rein in the costs of treating an increased patient load while taking some of the weight off the shoulders of physicians.”

Fitch: Outlook is negative for CHS

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https://www.beckershospitalreview.com/finance/fitch-outlook-is-negative-for-chs.html?utm_medium=email&utm_content=newsletter

Fitch Ratings has affirmed the “B-” long-term issuer default ratings of Franklin, Tenn.-based Community Health Systems, and revised the company’s rating outlook to negative from stable. 

The credit rating agency said the negative outlook reflects operating performance deterioration in the first half of this year, with significant increases in labor costs. Higher costs, weakness in volumes and acuity mix drove a downturn in the for-profit company’s revenue, resulting in a reduction in its financial guidance for this year, Fitch said. 

CHS ended the first six months of this year with a net loss of $327 million on revenues of $6.04 billion. In the first half of 2021, the company posted a net loss of $58 million on revenues of $6.02 billion.

Fitch noted that CHS still benefits from its strengthened liquidity and balance sheet after several debt refinancing and exchange transactions. CHS also benefits from investments in outpatient care and higher-acuity inpatient services, the credit rating agency said. 

For-profit hospital company earnings announcements show economic headwinds are mounting

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https://mailchi.mp/ff342c47fa9e/the-weekly-gist-july-22-13699925?e=d1e747d2d8

While for-profit health system giants HCA Healthcare and Tenet Healthcare reported reductions in contract labor usage last quarter, sustained higher labor costs and sluggish demand resulted in both of them, along with Community Health Systems and Universal Health Services, seeing their net income decline in the second quarter.

Like many systems, the for-profit chains seem to have successfully weaned themselves from earlier reliance on expensive temporary nurses, but are facing more structural increases in labor costs as salaries have risen to remain competitive in a very tight labor market.

The Gist: The earnings reports from for-profit companies are a canary in the coal mine for the overall margin performance of the industry. Although investor-owned companies are vastly outnumbered by their not-for-profit peers, they often move more quickly, and with more vigor, to reduce costs in order to meet the earnings expectations of Wall Street investors. They also typically rely more heavily on volume growth—particularly emergency department visits—as a driver of earnings. 

If for-profits are now finding it more difficult to pull those levers, we’d expect that the broader universe of nonprofit systems is experiencing even tougher sledding. That’s consistent with what we’re hearing anecdotally from health systems we work with.

Washington hospitals report $929M loss over 3 months

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https://www.beckershospitalreview.com/finance/washington-hospitals-report-929m-loss-over-3-months.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Washington State Hospital Association reported a $929 million net loss due to an increase in operating expenses and nonoperating investment losses, The News Tribune reported July 21. 

The review reflected January through March 2022 and showed operating revenue increased by 5 percent; however, operating expenses increased by 11 percent. 

“This combined with non-operating investment losses, resulted in a total margin of negative 13 percent,” WSHA said in a briefing of the review July 21. 

The losses were mainly seen in urban Washington hospitals, though rural hospitals were also affected. 

“All 52 urban hospitals/health systems reported negative margins and account for 86 percent of the losses statewide,” WSHA said. “Of the independent rural hospitals responding, 18 out of 32 had negative margins.”

WSHA said lower Medicaid reimbursements were part of the problem. In the first quarter, Medicaid reimbursements covered 42 percent of the cost of care delivery. 

Pandemic pressures also had a negative effect, according to WSHA. It said federal COVID-19 relief funds have been depleted. 

Additionally, WSHA said labor costs have continued to rise because of a need to retain staff and a reliance on travel nurses with high wages. 

HCA, Tenet profits sink: 10 things to know

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https://www.beckershospitalreview.com/finance/hca-tenet-profits-sink-10-things-to-know.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

HCA Healthcare and Tenet Healthcare, two of the largest for-profit hospital operators in the U.S., reported lower net income in the second quarter of this year than in the same period of 2021. 

HCA Healthcare

1. Nashville, Tenn.-based HCA Healthcare, a 182-hospital system, reported revenues of $14.82 billion in the second quarter of this year, up from $14.44 billion in the same period last year. 

2. HCA’s net income totaled $1.16 billion in the second quarter of 2022, down from $1.45 billion in the same period a year ago. The second quarter of this year included $32 million in losses on the sales of facilities and and losses on retirement of debt of $78 million. 

3. HCA said same-facility admissions declined 1.2 percent year over year in the second quarter of this year. Emergency room visits were up 7.3 percent year over year. 

4. “Many aspects of our business were positive considering the challenges we faced with the labor market and other inflationary pressures on costs,” Sam Hazen, CEO of HCA, said in a July 22 earnings release. “Our teams executed well as they have in the past through other difficult environments. Again, I want to thank them for their dedication and excellent work.”

5. For the six months ended June 30, HCA reported net income of $2.43 billion on revenues of $29.77 billion. In the same period a year earlier, the company posted net income of $2.87 billion on revenues of $28.41 billion. 

Tenet Healthcare

1. Dallas-based Tenet Healthcare reported revenues of $4.64 billion in the second quarter of this year, down from $4.95 billion in the same period a year earlier. The decrease was primarily attributed to the sale of the company’s Miami-area hospitals in the third quarter of 2021 and the impact of a cybersecurity incident. 

2. The 60-hospital system ended the second quarter of this year with net income of $38 million, down from $119 million in the same quarter last year. 

3. Same-hospital admissions adjusted for outpatient activity were down 5.3 percent year over year in the second quarter of this year. Tenet said a cybersecurity incident in April that temporarily disrupted some acute care operations contributed to the decline. 

4. “We demonstrated resilience in the face of a disruptive cyber attack and discipline through challenging market conditions,” Saum Sutaria, MD, CEO of Tenet, said in a July 21 earnings release. “The ongoing diversification of Tenet driven by our capital efficient ambulatory expansion is a key differentiator that presents compelling opportunities for growth in earnings and free cash flows.”

5. Looking at the six months ended June 30, Tenet reported net income of $178 million on revenues of $9.38 billion. In the same period of 2021, the company reported net income of $216 million on revenues of $9.74 billion. 

10 health systems with strong finances

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https://www.beckershospitalreview.com/finance/10-health-systems-with-strong-finances-0720.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=1727F7626990D7P

Here are 10 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings and Moody’s Investors Service.

1. AnMed Health has an “AA-” rating and stable outlook with Fitch. The Anderson, S.C.-based system has a leading market share in most service lines, strong operating performance and very solid EBITDA margins, Fitch said. 

2. 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. 

3. Franciscan Alliance has an “AA” rating and stable outlook with Fitch. The Mishawaka, Ind.-based health system has a very strong cash position and maintains leading market shares in seven of its nine defined primary service areas, Fitch said. The health system benefits from a good payer mix, the credit rating agency said. 

4. Gundersen Health System has an “AA-” rating and stable outlook with Fitch. The La Crosse, Wis.-based health system has strong balance sheet metrics and a leading market position and 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. 

5. 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. 

6. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The 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. 

7. Salt Lake City-based Intermountain Healthcare has an “Aa1” rating and stable outlook with Moody’s. The 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 give Intermountain greater geographic reach. 

8. Fort Wayne, Ind.-based Parkview Health has an “Aa3” rating and stable outlook with Moody’s. The health system has a leading market position with expansive tertiary and quaternary clinical services in northeastern Indiana and northwestern Ohio, Moody’s said. The credit rating agency said the stable outlook reflects management’s ability to generate strong operating performance during the pandement and with less favorable reimbursement rates. 

9. 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. 

10. 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

Hospitals need ‘transformational changes’ to stem margin erosion

Posted on by • Posted in Change Agent, Change Management, Changing Responsibilities, Cost Management, Cost Reduction, Health System, Hospital, Hospital Industry, Labor Shortages, Labor Spend Management, Market Consolidation, Market Power, Market Trends, Market Uncertainty, Mergers & Acquisitions, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Model, Restructure, Strategic Change, Strategic Leadership, Strategy, Transformational Change • Leave a comment

https://www.healthcaredive.com/news/Fitch-ratings-nonprofit-hospital-changes/627662/

Dive Brief:

  • Nonprofit hospitals are reporting thinner margins this year, stretched by rising labor, supply and capital costs, and will be pressed to make big changes to their business models or risk negative rating actions, Fitch Ratings said in a report out Tuesday.
  • Warning that it could take years for provider margins to recover to pre-pandemic levels, Fitch outlined a series of steps necessary to manage the inflationary pressures. Those moves include steeper rate increases in the short term and “relentless, ongoing cost-cutting and productivity improvements” over the medium term, the ratings agency said.
  • Further out on the horizon, “improvement in operating margins from reduced levels will require hospitals to make transformational changes to the business model,” Fitch cautioned.

Dive Insight:

It has been a rough year so far for U.S. hospitals, which are navigating labor shortages, rising operating costs and a rebound in healthcare utilization that has followed the suppressed demand of the early pandemic. 

The strain on operations has resulted in five straight months of negative margins for health systems, according to Kaufman Hall’s latest hospital performance report.

Fitch said the majority of the hospitals it follows have strong balance sheets that will provide a cushion for a period of time. But with cost inflation at levels not seen since the late 1970s and early 1980s, and the potential for additional coronavirus surges this fall and winter, more substantial changes to hospitals’ business models could be necessary to avoid negative rating actions, the agency said.

Providers will look to secure much higher rate increases from commercial payers. However, insurers are under similar pressures as hospitals and will push back, using leverage gained through the sector’s consolidation, the report said.

As a result, commercial insurers’ rate increases are likely to exceed those of recent years, but remain below the rate of inflation in the short term, Fitch said. Further, federal budget deficits make Medicare or Medicaid rate adjustments to offset inflation unlikely.

An early look at state regulatory filings this summer suggests insurers who offer plans on the Affordable Care Act exchanges will seek substantial premium hikes in 2023, according to an analysis from the Kaiser Family Foundation. The median rate increase requested by 72 ACA insurers was 10% in the KFF study.

Inflation is pushing more providers to consider mergers and acquisitions to create economies of scale, Fitch said. But regulators are scrutinizing deals more strenuously due to concerns that consolidation will push prices even higher. With increased capital costs, rising interest rates and ongoing supply chain disruptions, hospitals’ plans for expansion or renovations will cost more or may be postponed, the report said.

Providence restructures leadership team, cuts executive jobs

Posted on by • Posted in Employee Layoffs, Health System, Hospital, Hospital Industry, Job Loss, Job Market, Labor Shortages, Labor Spend Management, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Model, Operating Performance, Operating Revenue, Restructure • Leave a comment

https://www.healthcaredive.com/news/providence-job-cuts/627660/

Providence said Tuesday it is restructuring and reducing executive roles amid persistent operating challenges spurred by the COVID-19 pandemic.

Providence said it will reduce its regional executive teams to three divisions from seven. The Washington-based nonprofit health system also has plans to consolidate three clinical lines of business — physician enterprise, ambulatory care network and clinical institutes — down to one executive leadership team. 

“We began this journey before the pandemic, but it has become even more imperative today as health systems across the country face a new reality,” Providence President and CEO Rod Hochman said in a statement. 

The new operating model is aimed at protecting direct patient care staff and other essential roles, Melissa Tizon, vice president of communication, told Healthcare Dive. 

It’s unclear how many roles will be eliminated as part of the restructuring. Providence did not provide a specific number of job reductions. 

Erik Wexler, former president of strategy and operations in Providence’s southern regions, will step into a new role as chief operating officer and will oversee the three new divisions.

Kevin Manemann will serve as division chief executive of the South region, which includes operations in Southern and Northern California. 

Joel Gilbertson, division chief executive for the central region, will oversee operations in Eastern Washington, Montana, Oregon, Texas and New Mexico. 

Guy Hudson will lead the North Division, which includes operations in Western Washington and Alaska. Hudson will keep his role as president and CEO of Swedish Health Services in Seattle. 

David Kim, an executive vice president, will lead the three clinical business lines that were consolidated under one leadership team. 

The shakeup comes after Providence reported in March that its operating loss doubled in 2021, reaching $714 million as operating expenses climbed 8% for the year. 

The system said it treated more patients who were sicker and required a higher level of care than in 2020 and, at the same time, struggled with labor shortages.

National Hospital Flash Report (June 2022)

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Click to access KH-NHFR-2022-06.pdf

Summary
U.S. hospitals and health systems continued to face difficult financial
and operational headwinds in May. Operating margins rose from April
but remained significantly lower than pre-pandemic levels and May 2021.

Volumes were up slightly from the previous month, with rising ED
visits close to numbers last seen in 2019 and earlier.
Gross operating revenues rose month-over-month and in comparison
to May 2021. But expenses — especially labor costs — were elevated
across nearly every metric month-over-month.


Margins
The median Kaufman Hall Year-To-Date (YTD) Operating Margin Index
reflecting actual margins was -0.33% through May.
The median change in Operating Margin was up 18.9% from last month
but down 45.6% from May 2021. The median change in Operating
EBITDA Margin was up 13.5% month-over-month, but down 36.1% from
May 2021.

Volumes
Patient volumes rose in May, with Length of Stay (LOS) up 2.3% from
April and 5.5% compared to May 2021. Patient Days increased by 4.8%
month-over-month but dropped 0.5% versus May 2021. Adjusted
Patient Days grew 3.5% from April to May and were 4% above May 2021
levels. Adjusted Discharges rose slightly, at 0.6% month-over-month,
but were down 0.3% compared to May 2021. Surgeries barely
fluctuated, with Operating Room Minutes down 1.0% from last month
and up just 0.1% YOY. Emergency Department (ED) Visits jumped 9.5%
from April to May and were up 4.5% YOY.


Revenues
Volume increases resulted in slightly improved revenue performance in
May. Gross Operating Revenue was up 3.4% from April and 7.6% YOY,
and is up 6.9% YTD. Similarly, Outpatient (OP) Revenue rose 2.2% from
April levels, 9.4% YOY and is up 9.1% YTD. Inpatient (IP) Revenue
climbed 3.5% from the previous month and 2.6% from May 2021, and is
up 4.2% YTD.

Expenses
Total Expenses continued to climb in May, rising 1.1% from April and
10.7% from May 2021. Inflation and labor shortages contributed to
total costs climbing 10.4% YTD.


Labor Expense per Adjusted Discharge inched up by 1.0% from April
and has surged 13.6% YTD, while Full-Time Employees Per Adjusted
Occupied Bed (FTEs per AOB), is down by 2.7% YTD, indicating that
hospitals are spending more on labor costs with fewer hours worked.
However, FTEs per AOB rose slightly in May, up 2.8% from April. Total
Expense per Adjusted Discharge increased by 0.3% from April, and
Labor Expense per Adjusted Discharge rose 1.0% from last month.

Non-Operating
The Federal Reserve raised its benchmark rate by 75 basis points in
mid-June, the most aggressive increase since 1994, as inflation hit a
40-year high of 8.6% in May. New projections show The Federal Open
Market Committee (FOMC) participants expect the Fed to raise rates to
at least 3% this year, with half indicating 3.375%. Labor metrics remain
strong with unemployment reading 3.6% in May and employers adding
390,000 new jobs.


Consumer sentiment hit a record low reading of 50.2 in early June,
comparable to the low point reached during the 1980 recession. US
equities ended May with marginal gains after weeks of volatile trading
due to economic data and corporate earnings sowing doubt over the
health of the US economy.

Takeaways at a Glance

  1. Nearly halfway through 2022, margins are cumulatively negative.
    While some metrics have normalized, hospitals continue to perform below pre-pandemic levels,
    and there is an uncertain outlook for the rest of the year.
  2. Elevated labor costs remain a significant challenge.
    Hospitals are still seeing higher labor costs and fewer hours worked, a sign of inflation and an
    indicator that long-standing labor shortages are likely worsened by increased turnover.
  3. Warmer temperatures and ED visits drove up volumes and revenues.
    Patients often schedule elective procedures during the summer months, which may have
    contributed to growing volumes. Emergency department visits also spiked this past month as
    people spent more time outdoors.
  4. Pent-up demand for hospital services also contributed to an increase in patients.
    Sicker patients continued to schedule procedures they had previously postponed, suggesting
    a return to normalcy as COVID-19 hospitalizations remained relatively low.