Tacoma, Wash.-based Virginia Mason Franciscan Health has laid off more than 300 administrative employees, the Puget Sound Business Journal reported April 4.
The job cuts affected less than 2 percent of the health system’s 19,000-plus workforce.
“Like many healthcare providers in the Pacific Northwest, we are experiencing tremendous financial strain caused by a number of factors, including lasting impacts from the COVID-19 pandemic, inflation and labor shortages,” Kelly Campbell, vice president of marketing and communications, told the Journal.
Affected employees will be eligible for career transition assistance, extended benefits and severance programs, according to the report.
Virginia Mason, which includes 10 hospitals and nearly 300 care sites, said it is focused on improving efficiencies and reducing costs in response to financial headwinds.
In 2022, Washington hospitals reported a total net loss of more than $2.7 billion, compared to a $1.2 billion loss in 2021, while their net operating loss was $2.1 billion, up from $742 million in 2021.
“We’re very concerned that access to this specialized care, the highest level of care, and in many cases, the life-saving care is threatened by unsustainable financial losses as hospitals are resorting to extraordinary means to close the gaps in their budgets,” Cassie Sauer, president and CEO of the Washington State Hospital Association, said in a March 21 media briefing.
Hospital finances are starting to stabilize as razor-thin margins become the new normal, according to Kaufman Hall’s latest “National Flash Hospital Report,” which is based on data from more than 900 hospitals.
External economic factors including labor shortages, higher material expenses and patients increasingly seeking care outside of inpatient settings are affecting hospital finances, with the high level of fluctuation that margins experienced since 2020 beginning to subside.
Hospitals’ median year-to-date operating margin was -1.1 percent in February, down from -0.8 percent in January, according to the report. Despite the slight dip, February marked the eight month in which the variation in month-to-month margins decreased relative to the last three years.
“After years of erratic fluctuations, over the last several months we are beginning to see trends emerge in the factors that affect hospital finances like labor costs, goods and services expenses and patient care preferences,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said. “In this new normal of razor thin margins, hospitals now have more reliable information to help make the necessary strategic decisions to chart a path toward financial security.”
High expenses continued to eat into hospitals’ bottom lines, with February signaling a shift from labor to goods and services as the main cost driver behind hospital expenses. Inflationary pressures increased non-labor expenses by 6 percent year over year, but labor expenses appear to be holding steady, suggesting less dependence on contract labor, according to Kaufman Hall.
“Hospital leaders face an existential crisis as the new reality of financial performance begins to set in,” Mr. Swanson said. “2023 may turn out to be the year hospitals redefine their goals, mission, and idea of success in response to expense and revenue challenges that appear to be here for the long haul.”
MedPAC’s recommendation that acute care hospitals don’t need a significant increase in 2024 Medicare rates is “totally insufficient and out of touch with reality,” according to the American Hospital Association.
“This view is one-sided, inaccurate and misleading,” Ashley Thompson, AHA’s senior vice president of public policy analysis and development, wrote in a March 23 blog post. “After years of once-in-a-lifetime events in the form of a global pandemic and record inflation, hospitals across the country are struggling to continue to fulfill their mission to care for their patients and communities.”
In its annual March report to Congress, MedPAC recommended an update to hospital payment rates of “current law plus 1 percent,” which the AHA says is not enough for many hospitals to keep their doors open.
The commission found that most indicators of sufficient Medicare rates for providers were positive or improved in 2021, though it acknowledged that hospitals saw more volatile cost increases in 2022 compared to years prior. Hospital margins were also lower last year than in 2021, according to preliminary data, driven in part by providers facing higher than expected costs and capacity and staffing challenges.
The report also said that its 2024 payment recommendations “may not be sufficient” to sustain some safety-net hospitals with a low number of commercially insured patients, and proposed $2 billion in add-on payments.
Across the U.S., a total of 631 rural hospitals — or about 30 percent of all rural hospitals — are at risk of closing in the immediate or near future.
MedPAC’s recommendations for 2024 differ from how some health economists have recently described hospitals’ finances. In January, hospitals had a median operating margin of -1 percent according to Kaufman Hall, a finding that arrived on the heels of 2022 being named the worst financial year for hospitals since the start of the COVID-19 pandemic.
“It is also important to realize that MedPAC’s report and data has limitations,” Ms. Thompson wrote, referring to a misalignment in the calendar year MedPAC chose to analyze and how hospitals can differ in how they report their individual financial earnings.
MedPAC said its report reflects 2021 data, preliminary data from 2022, and projections for 2023, along with recent inflation rates.
“…cost reports are filed for hospitals’ own specific fiscal years, and because surges, relief payments, and eventual expense increases happened at different times for different hospitals, these calculated margins don’t necessarily provide a fully accurate picture of the financial reality in 2021,” Ms. Thompson wrote.
The AHA stressed that hospitals’ finances in 2023 face much different challenges compared to 2021, when the industry was more supported by strong investment returns and federal pandemic relief.
“The fact that massive numbers of hospitals are not currently closing due to financial pressures should be seen as positive for patients and communities,” Ms. Thompson said. “Instead, some observers seem to be disappointed that more hospitals are not failing financially.”
A detailed response from the AHA to the MedPAC report is available here.
A number of hospitals and health systems are trimming their workforces or jobs due to financial and operational challenges.
Below are workforce reduction efforts or job eliminations that were announced within the past six months and/or take effect later this year.
Editor’s Note: This webpage was updated March 27 and will continue to be updated.
1. Bellevue, Wash.-based Overlake Medical Center and Clinics has laid off administrative staff, the health system confirmed to the Puget Sound Business Journal. The layoffs, which occurred earlier this year, included 30 workers across Overlake’s human resources, information technology and finance departments, a spokesperson said, according to the publication. This represents about 6 percent of the organization’s administrative workforce. Overlake’s website says it employs more than 3,000 people total.
2. Columbia-based University of Missouri Health Care is eliminating five hospital leadership positions across the organization, spokesperson Eric Maze confirmed to Becker’s March 20. Mr. Maze did not specify which roles are being eliminated saying that the organization won’t address individual personnel actions. According to MU Health Care, the move is a result of restructuring “to better support patients and the future healthcare needs of Missourians.”
3. Greensboro, N.C.-based Cone Healtheliminated 68 senior-level jobs. The job eliminations occurred Feb. 21, Cone Health COO Mandy Eaton told The Alamance News. Of the 68 positions eliminated, 21 were filled. Affected employees were offered severance packages.
4. The newly merged Greensburg, Pa.-based organization made up of Excela Health and Butler Health Systemeliminated 13 filled managerial jobs. The affected employees and positions are from across both sides of the new organization, Tom Chakurda, spokesperson for the Excela-Butler enterprise, confirmed to Becker’s. The positions were in various support functions unrelated to direct patient care.
5. Crozer Health, a four-hospital system based in Upland, Pa., is laying off roughly 215 employees amid financial challenges. The system announced the layoffs March 15 as part of its “operational restructuring plan” that “focuses on removing duplication in administrative oversight and discontinuing underutilized services.” Affected employees represent about 4 percent of the organization’s workforce.
6. 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.
7. 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.
8. 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.
9. Marshfield (Wis.) Clinic Health System will lay off 346 employees, representing less than 3 percent of its employee base.
11. Roseville, Calif.-based Adventist Health plans to go from seven networks of care to five systemwide to reduce costs and strengthen operations. The reorganization will result in job cuts, including reducing administration by more than $100 million.
12. Arcata, Calif.-based Mad River Community Hospital is cutting 27 jobs as it suspends home health services.
13.. Hutchinson (Kan.) Regional Medical Centerlaid off 85 employees, a move tied to challenges in today’s healthcare environment.
14. Oklahoma City-based OU Health is eliminated about 100 positions as part of an organizational redesign to complete the integration from its 2021 merger.
15. Memorial Sloan Kettering Cancer Center announced it would lay off to reduce costs amid widespread hospital financial challenges. The layoffs are spread across 14 sites in New York City, and equate to about 1.8 percent of Memorial Sloan’s 22,500 workforce.
16. St. Louis-based Ascensioncompleted layoffs in Texas, the health system confirmed in January. A statement shared with Becker’s says the layoffs primarily affected nonclinical support roles. The health system declined to specify to Becker’s the number of employees or positions affected.
18. Chillicothe, Ohio-based Adena Health System announced it would eliminate 69 positions — 1.6 percent of its workforce — and send 340 revenue cycle department employees to Ensemble Health Partners’ payroll in a move aimed to help the health system’s financial stability.
19. Ascension St. Vincent’s Riverside in Jacksonville, Fla., will end maternity care at the hospital, affecting 68 jobs, according to a Workforce Adjustment and Retraining Notification filed with the state Jan. 17. The move will affect 62 registered nurses as well as six other positions.
20. Visalia, Calif.-based Kaweah Health aims to eliminate 94 positions through early January as part of a new strategy to reduce labor costs. The job cuts come in addition to previously announced workforce reductions; the health system already eliminated 90 unfilled positions and lowered its workforce by 106 employees.
21. Oklahoma City-based Integris Health is eliminating 200 jobs to curb expenses. The eliminations include 140 caregiver roles and 60 vacant jobs.
22. Toledo, Ohio-based ProMedica plans to lay off 262 employees, a move tied to its exit from a skilled-nursing facility joint venture late last year. The layoffs will take effect between March 10 and April 1.
23. Employees at Las Vegas-based Desert Springs Hospital Medical Center were notified of layoffs coming to the facility, which will transition to a freestanding emergency department. There are 970 employees affected. Desert Springs is part of the Valley Health System, a system owned and operated by King of Prussia, Pa.-based Universal Health Services.
24. Philadelphia-based Jefferson Health plans to go from five divisions to three in an effort to flatten management and become more efficient. The reorganization will result in an unspecified number of job cuts, primarily among executives.
25. Pikeville (Ky.) Medical Center will lay off 112 employees by year’s end as it outsources its environmental services department. The 112 layoffs are effective Jan. 1, 2023, with the affected employees’ last day of work expected to be Dec. 31.
26. Southern Illinois Healthcare, a four-hospital system based in Carbondale, announced it would eliminate or restructure 76 jobs in management and leadership. The 76 positions fall under senior leadership, management and corporate services. Included in that figure are 33 vacant positions, which will not be filled. No positions in patient care are affected.
27. Citing a need to further reduce overhead expenses and support additional investments in patient care and wages, Traverse City, Mich.-based Munson Health is eliminating 31 positions and leaving another 20 jobs unfilled. All affected positions are in corporate services or management. The layoffs represent less than 1 percent of the health system’s workforce of nearly 8,000.
28. West Reading, Pa.-based Tower Health on Nov. 16 laid off 52 corporate employees as the health system shrinks from six hospitals to four. The layoffs, which are expected to save $15 million a year, account for 13 percent of Tower Health’s corporate management staff.
29. Sioux Falls, S.D.-based Sanford Health announced layoffs affecting an undisclosed number of staff in October, a decision its CEO said was made “to streamline leadership structure and simplify operations” in certain areas. The layoffs primarily affect nonclinical areas.
30. St. Vincent Charity Medical Center in Cleveland closed its inpatient and emergency room care Nov. 11, four days before originally planned — and laid off 978 workers in doing so. After the transition, the Sisters of Charity Health System will offer outpatient behavioral health, urgent care and primary care.
Sacramento, California-based Sutter Health crossed the finish line strong but ultimately wrapped up 2022 with a $249 million net loss, a substantial decline from the $1.1 billion profit of 2021.
A $628 million dip in investment income, a $578 million decrease in net unrealized gains and losses on investments and the $208 million disaffiliation of Samuel Merritt University all contributed to the nonprofit’s year-over-year decline.
Still, the tally is a $289 million improvement over the $538 million net loss the system had reported at the year’s nine-month mark.
The loss was also blunted by a 12-month operating income of $278 million—a bump over the $199 million operating income of 2021 and a feather in Sutter’s cap at a time when several other major nonprofit systems are reporting hundreds of millions in operating losses.
“Our operating financial performance has put Sutter in a position to reinvest more within the system, which can help support even higher quality, equitable healthcare for patients throughout California,” CEO and President Warner Thomas said in a press release.
Sutter’s total operating revenues rose 3.9% year over year to $14.8 billion in 2022. This was just ahead of the 3.3% increase to $14.5 billion in total operating expenses. The system wrote in a release that “like other healthcare organizations around the country,” it was not immune from inflationary pressures on expenses like wages and benefits or supplies.
However, the strong results of its 2021 financial recovery initiative and patient volumes “returning to near-2019 levels by year’s end” give Sutter “a stable base to invest in the future,” the system said.
Renton, Wash.-based Providence had its second downgrade in less than a week amid higher expenses that helped lead to steeper-than-expected losses and an expectation of a multiyear recovery.
The rating downgrade from “A+” to “A” applies to the system’s long-term rating as well as to various bonds it holds, S&P Global said March 21. The outlook is negative.
“The negative outlook reflects our view of the steep operating losses that management must address over the next year to put the organization on a path to better cash flow and break-even margins,” S&P said.
The rating downgrade follows a similar move by Fitch March 17.
Positive fundamentals such as its diversified services and robust strategic plan, as well as its leading market positions in all seven of its regionally centered markets, stands Providence in good stead, S&P added.
Providence, a 51-hospital system, recently reported a fiscal 2022 operating loss of $1.7 billion.
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.
Here is a summary of recent credit rating downgrades, going back to the last Becker’s roundup on Jan. 17.
Operating concerns and a bleak financial outlook for some resulted in the following changes:
Geisinger Health System (Danville, Pa.): Moody’s Investors Service downgraded Geisinger Health System’s outstanding bonds from “A1” to “A2” Feb. 13 amid expectations of continued cash flow weakness.
The outlook for the system, which has about $1.3 billion in debt, is stable.
Marshfield (Wis.) Clinic Health System: The system suffered a credit downgrade because of recent operating losses and amid expectations of no immediate financial improvement.
The S&P Global move Feb. 7 to downgrade the system to “BBB+” from “A-” follows a similar move from Fitch Jan. 18.
Marshfield signed a memorandum of understanding with Duluth, Minn.-based Essentia Health to discuss a potential merger Oct. 12 that would include 25 hospitals.
Tower Health (West Reading, Pa.): Troubled Tower Health, which is currently undergoing a strategic review and selling off several assets, suffered a rating downgrade on its bonds, S&P Global reported Feb. 6, adding that the outlook is negative.
“The downgrade reflects Tower Health’s significant ongoing operating losses that are expected to continue in fiscal 2023, and a steep decline in unrestricted reserves to a level that we view as highly vulnerable,” said S&P Global Ratings credit analyst Anne Cosgrove.
Fairview Health (Minneapolis): Moody’s Investors Service downgraded the revenue bond ratings of Fairview Health from “A3” to “Baa1.”
The downgrade reflects Moody’s projection that weak operating performance will be challenging to overcome due to increased labor costs and lower inpatient volume. Inflation and annual transfers to the University of Minnesota in Minneapolis will also hamper margins, Moody’s said.
HENRY KOTULA 