Pittsburgh-based UPMC’s operating income hit $100.4 million in the first quarter — up from $50.4 million in the prior year period — due to increased patient volumes, the growth of its insurance division and equity earnings in its investment in CarepathRx.
UPMC said quarterly results were partially offset by reduced pandemic-related funding and increased labor costs. First-quarter revenue increased 12 percent year over year to $6.9 billion and expenses rose 11 percent to $6.8 billion.
Year over year, UPMC’s admissions and observations increased 6 percent, while its health plan grew by almost 500,000 members to 4.5 million. UPMC attributed the 12 percent jump to the expansion of its behavioral health and Medicaid programs in eastern Pennsylvania.
“While meeting strong patient preference for care to be provided more conveniently in ambulatory settings closer to home, UPMC’s outpatient revenue increased 9 percent compared to a year ago,” CFO Edward Karlovich said in a May 25 news release. “Our patient volumes continue to shift from inpatient to outpatient settings.”
After including the performance of its investment portfolio and other nonoperating items, the 40-hospital system reported an overall gain of $187.3 million, compared with a loss of $226.2 million in the first quarter of 2022.
Fitch Ratings Senior Director Kevin Holloran dubbed 2022 the worst operating year ever and most nonprofit health systems reported large losses. However, the losses are shrinking and some systems have even reported gains during 2023 so far.
Cleveland Clinic reported $335.5 million net income for the first quarter of the year, compared with a $282.5 million loss over the same period in 2022. The health system reported revenue of $3.5 billion for the quarter. Cleveland Clinic has 321 days cash on hand, which puts it in a strong position for the future.
Boston-based Mass General Brighamreported $361 million gain for the second quarter ending March 31, which is up from a $867 million loss in the same period last year. The health system reported quarterly revenue jumped 11 percent year over year to $4.5 billion. The system’s quarterly loss on operations was down significantly this year, hitting $8 million, compared to $183 million last year.
Renton, Wash.-based Providence reported first quarter revenues were up 5.1 percent in 2023 to $7.1 billion, and operating loss is also moving in the right direction. The system reported $345 million operating loss in the first quarter of 2023, down from $510 million last year.
All three systems cited ongoing labor shortages and labor costs as a challenge, but are working on initiatives to reduce expenses. Cleveland Clinic and Mass General Brigham reported operating margin improvement to nearly positive numbers.
Kaiser Permanente, based in Oakland, Calif., also reported operating income at $233 million for the first quarter of the year, an increase from $72 million operating loss over the same period last year. The system is focused on advancing value-based care for the remainder of the year and its health plan grew more than 120,000 members year over year.
Even more regional systems are stemming their losses. SSM Health, based in St. Louis, went from a $57.4 million loss for the first quarter of 2022 to $16.5 million quarterly loss this year. Revenue increased 13.3 percent to $2.5 billion for the quarter, with increased labor expenses and inflation on supply costs continuing to weigh on the system.
UCHealth in Aurora, Colo., also reported a first quarter income of $61.8 million and revenue of more than $5 billion.
Not every system is seeing losses decline. Chicago-based CommonSpirit Health, which reported larger operating losses in the first quarter year over year, hitting $658 million and $1.1 billion for the nine-month’s end March 31. The system was able to reduce contract labor costs, but still finds hiring a challenge and spent time last year recovering from a cybersecurity incident.
Hospitals face a long road to financial recovery from the pandemic as inflation persists and labor shortages become the norm, but movement in the right direction is welcome.
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 nine months and/or take effect later this year.
1. Wenatchee, Wash.-based Confluence Health has eliminated its chief operating officer amid restructuring efforts and financial pressures, the health system confirmed to Becker’s May 16.
2. Conemaugh Memorial Medical Center, a Duke LifePoint hospital in Johnstown, Pa., has laid off less than 1 percent of its workforce, the hospital confirmed to Becker’s May 15.
3. Community Health Network, a nonprofit health system based in Indianapolis, plans to cut an unspecified number of jobs as it restructures its workforce and makes organizational changes. The health system confirmed the job cuts in a statement shared with Becker’s on May 11. It did not say how many jobs would be cut or which positions would be affected.
4. New Orleans-based Ochsner Healtheliminated 770 positions, or about 2 percent of its workforce, on May 11. This is the largest layoff to date for the health system.
5. Cedars-Sinai Medical Centereliminated the positions of 131 employees and cut about two dozen other jobs at related Cedars-Sinai facilities, a spokesperson confirmed via a statement shared with Becker’s May 7. The Los Angeles-based organization said reductions represent less than 1 percent of the workforce and apply to management and non-management roles primarily in non-patient care jobs.
6. Rochester (N.Y.) Regional Health is eliminating about 60 positions. A statement from RRH said the changes affect less than one-half percent of the system population, mostly in nonclinical and management positions.
7. Memorial Health Systemlaid off fewer than 90 people, or less than 2 percent of its workforce.The Gulfport, Miss.-based health system said May 2 that most of the affected positions are nonclinical or management roles, and the majority do not involve direct patient care.
8. Monument Healthlaid off at least 80 employees, or about 2 percent of its workforce. The Rapid City, S.D.-based system said positions are primarily corporate service roles and will not affect patient services. Unfilled corporate service positions were also eliminated.
9. Habersham Medical Center in Demorest, Ga., laid off four executives. The layoffs are part of cost-cutting measures before the hospital joins Gainesville-based Northeast Georgia Health System in July, nowhaberbasham.com reported April 27.
10. Scripps Health is eliminating 70 administrative roles, according to WARN documents filed by the San Diego-based health system in March. The layoffs take effect May 8 and affect corporate positions in San Diego and La Jolla, Calif.
11. Trinity Health Mid-Atlantic, part of Livonia, Mich.-based Trinity Health, eliminated fewer than 40 positions, a spokesperson confirmed to Becker’s April 24. The layoffs represent 0.5 percent of the health system’s approximately 7,000-person workforce.
12. PeaceHealtheliminated 251 caregiver roles across multiple locations. The Vancouver, Wash.-based health system said affected roles include 121 from Shared Services, which supports its 16,000 caregivers in Washington, Oregon and Alaska.
13. Toledo, Ohio-based ProMedicaplans to lay off 26 skilled nursing support staff. The layoffs, effective in June, affect 20 employees who work remotely across the U.S, and six who work at the ProMedica Summit Center in Toledo, according to a Worker Adjustment and Retraining Notification filed April 18. Most affected positions support sales, marketing and administrative functions for the skilled nursing facilities, Promecia told Becker’s.
14. Northern Inyo Healthcare District, which operates a 25-bed critical access hospital in Bishop, Calif., anticipates eliminating about 15 positions, or less than 4 percent of its 460-member workforce, by April 21, a spokesperson confirmed to Becker’s. The layoffs include nonclinical roles within support and administration, according to a news release. No further details were provided about specific positions affected.
15. West Reading, Pa.-based Tower Health is eliminating 100 full-time equivalent positions. The move will affect 45 individuals, according to an April 13 news release the health system shared with Becker’s. The other 55 positions are either recently vacated or involve individuals who plan to retire in the coming weeks and months.
16. Grand Forks, N.D.-based Altru Health is trimming its executive team as its new hospital project moves forward. The health system is trimming its executive team from nine to six and incentivizing 34 other employees to take early retirement.
17. Tacoma, Wash.-based Virginia Mason Franciscan Healthlaid off nearly 400 employees, most of whom are in non-patient-facing roles. The job cuts affected less than 2 percent of the health system’s 19,000-plus workforce.
18. Katherine Shaw Bethea Hospital in Dixon, Ill., will lay off 20 employees, citing financial headwinds affecting health organizations across the U.S. It will also leave other positions unfilled to reduce expenses amid rising labor and supply costs and reductions in payments by insurance plans. Affected employees largely work in administrative support areas and not direct patient care.
19. Danbury, Conn.-based Nuvance Health will close a 100-bed rehabilitation facility in Rhinebeck, N.Y., resulting in 102 layoffs. The layoffs are effective April 12, according to the Daily Freeman.
20. Charleston, S.C.-based MUSC Health University Medical Center laid off an unspecified number of employees from its Midlands hospitals in the Columbia, S.C. area. Division President Terry Gunn also resigned after the facilities missed budget expectations by $40 million in the first six months of the fiscal year, The Post and Courier reported March 30.
21. Winston-Salem, N.C.-based Novant Healthlaid off about 50 workers, including C-level executives, the health system confirmed to Becker’s March 29. The layoffs affected Jesse Cureton, the health system’s executive vice president and chief consumer officer since 2013; Angela Yochem, its executive vice president and chief transformation and digital officer since 2020; and Paula Dean Kranz, vice president of innovation enablement and executive director of the Novant Health Innovation Labs.
22. Penn Medicine Lancaster (Pa.) General Healtheliminated fewer than 65 jobs, or less than 1 percent of its workforce of about 9,700, the health system confirmed to Becker’s March 30. The layoffs include support, administrative and executive roles, and COVID-19-related support staff, spokesperson John Lines said, according to lancasteronline.com. Mr. Lines did not provide a specific number of affected workers.
23. McLaren St. Luke’s Hospital in Maumee, Ohio, will lay off 743 workers, including 239 registered nurses, when it permanently closes this spring. Other affected roles include physical therapists, radiology technicians, respiratory therapists, pharmacists and pharmacy support staff, and nursing assistants. The hospital’s COO is also affected, and a spokesperson for McLaren Health Care told Becker’s other senior leadership roles are also affected.
24. Bellevue, Wash.-based Overlake Medical Center and Clinics 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.
25. 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.”
26. 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.
27. 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.
28. 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.
29. 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.
30. Sovah Health, part of Brentwood, Tenn.-based Lifepoint Health, 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.
31. 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.
32. Marshfield (Wis.) Clinic Health System said it would lay off 346 employees, representing less than 3 percent of its employee base.
34. 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.
36. Hutchinson (Kan.) Regional Medical Center laid off 85 employees, a move tied to challenges in today’s healthcare environment.
37. Oklahoma City-based OU Healtheliminated about 100 positions as part of an organizational redesign to complete the integration from its 2021 merger.
38. 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.
39. 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.
41. 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.
42. 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.
43. Visalia, Calif.-based Kaweah Health said it aimed to eliminate 94 positions 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.
44. Oklahoma City-based Integris Health said it would eliminate 200 jobs to curb expenses. The eliminations include 140 caregiver roles and 60 vacant jobs.
45. Toledo, Ohio-based ProMedica announced 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.
46. 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.
47. 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.
48. Pikeville (Ky.) Medical Center said it would lay off 112 employees as it outsources its environmental services department. The 112 layoffs were effective Jan. 1, 2023.
49. 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.
50. Citing a need to further reduce overhead expenses and support additional investments in patient care and wages, Traverse City, Mich.-based Munson Health said it would eliminate 31 positions and leave 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.
51. 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.
52. Sioux Falls, S.D.-based Sanford Healthannounced 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.
53. 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.
Renton, Wash.-based Providence has reported a $345 million operating loss in the first quarter on revenue of $6.8 billion.
While revenues were up on the same period in 2022, expenses also rose 5.1 percent to total $7.1 billion. The operating loss compares with a $510 million loss in the first quarter of 2022.
Improving non-operating income, mainly from investment returns, helped mitigate the net loss to $117 million compared with an $840 million net loss in the same period last year, excluding the disaffiliation of Newport Beach, Calif.-based Hoag.
The 51-hospital system reiterated it is taking a number of initiatives to reduce some of its costs under its Destination Health 2025 Recover and Renew plan. One of those prime areas of focus is reducing staffing costs, particularly in regard to contract labor, which continues to be a challenge for Providence.
“With current labor shortages, the use of premium labor, including the number and wage rate of agency nurses, continues to be significantly higher than in previous years,” management said in its filing. “Several initiatives are underway to reduce those expenses in combination with increasing core productivity.”
Providence is also undergoing portfolio management reassessment to try and improve efficiencies and save costs, according to the filing.
The system, which had $7.8 billion long-term debt as of March 31, provided $563 million in community benefit in the first quarter, up from $412 million in the same period of 2022.
“Together, we will continue meeting the health care needs of our communities, no matter how challenging the environment gets, and will ensure the mission of Providence thrives for years to come,” Rod Hochman, MD, Providence president and CEO said in the filing.
Livonia, Mich.-based Trinity Health is restructuring leadership on the West Coast as it combines Saint Agnes Medical Center in California and Saint Alphonsus Health System in Idaho and Oregon into one regional ministry, according to a statement shared with Becker’s May 4.
Trinity Health said the combination will allow these ministries “to streamline management and decision-making, reduce administrative costs and improve overall operating performance.”
The ministries will keep their names, and the boards of directors for each ministry will remain separate, the health system said. There will also be leadership changes.
Nancy Hollingsworth, MSN, RN, will retire as president and CEO of Fresno, Calif.-based Saint Agnes, effective May 26. Odette Bolano, BSN, president and CEO of Boise, Idaho-based Saint Alphonsus, will become president and CEO of the new regional entity. Additionally, David Spivey will join Saint Agnes as interim president and market leader.
This is a natural progression, as several services have already been consolidated between Saint Agnes and Saint Alphonsus, Trinity Health said.
The health system has also merged ministries in other regions, including Michigan, Indiana, Illinois, Iowa and New York.
Trinity Health has 123,000 employees in 26 states, according to its website.
Sacramento, Calif.-based Sutter Health reported $88 million in operating income for the first quarter of 2023 on revenues of $3.8 billion.
Such figures compared with $95 million operating income on $3.6 billion of revenues in the same period last year.
The positive first-quarter operating income figure builds on a 2022 operating income of $278 million. Overall income for the first quarter totaled $220 million compared with a $166 million loss in the same period in 2022.
Sutter Health, which is undergoing some executive management changes, employs 51,000 people and operates 282 care facilities.
Here are 24 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 in 2023.
Note: This is not an exhaustive list. Health system names were compiled from credit rating reports.
1. Atrium Health has an ‘AA-‘ and stable outlook with S&P Global. The Charlotte, N.C.-based system’s rating reflects a robust financial profile, growing geographic diversity and expectations that management will continue to deploy capital with discipline.
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. CaroMont Health has an “AA-” rating and stable outlook with S&P Global. The Gastonia, N.C.-based system has a healthy financial profile and robust market share in a competitive region.
4. CentraCare has an “AA-” rating and stable outlook with Fitch. The St. Cloud, Minn.-based system has a leading market position, and its management’s focus on addressing workforce pressures, patient access and capacity constraints will improve operating margins over the medium term, Fitch said.
5. Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The Minneapolis-based system’s broad reach within the region continues to support long-term sustainability as a market leader and preferred provider for children’s health care, Fitch said.
6. 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.
7. El Camino Health has an “AA-” rating and stable outlook with Fitch. The Mountain View, Calif.-based system has a history of generating double-digit operating EBITDA margins, driven by a solid market position that features strong demographics and a very healthy payer mix, Fitch said.
8. 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.
9. Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by a leading market position in its immediate area and very strong financial profile, Fitch said.
10. Inspira Health has an “AA-” rating and stable outlook with Fitch. The Mullica Hill, N.J.-based system’s rating reflects its leading market position in a stable service area and a large medical staff supported by a growing residency program, Fitch said.
11. Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The Rochester, Minn.-based system’s credit profile characterized by its excellent reputations for clinical services, research and education, Moody’s said.
12. McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The Grand Blanc, Mich.-based system has a leading market position over a broad service area covering much of Michigan and a track-record of profitability despite sector-wide market challenges in recent years, Fitch said.
13. Novant Health has an “AA-” rating and stable outlook with Fitch. The Winston-Salem, N.C.-based system has a highly competitive market share in three separate North Carolina markets, Fitch said, including a leading position in Winston-Salem (46.8 percent) and second only to Atrium Health in the Charlotte area.
14. NYC Health + Hospitals has an “AA-” rating with Fitch. The New York City system is the largest municipal health system in the country, serving more than 1 million New Yorkers annually in more than 70 patient locations across the city, including 11 hospitals, and employs more than 43,000 people.
15. 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.
16. 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.
17. Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The Cape Girardeau, Mo.-based system enjoys robust operational performance and a strong local market share as well as manageable capital plans, Fitch said.
18. 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.
19. Stanford Health Care has an “AA” rating and stable outlook with Fitch. The Palo Alto, Calif.-based system’s rating is supported by its extensive clinical reach in the greater San Francisco and Central Valley regions and nationwide/worldwide destination position for extremely high-acuity services, Fitch said.
20. SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system has a strong financial profile, multi-state presence and scale, with solid revenue diversity, Fitch said.
21. 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.
22. 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.
23. WellSpan Health has an “Aa3” rating and stable outlook with Moody’s. The York, Pa.-based system has a distinctly leading market position across several contiguous counties in central Pennsylvania, and management’s financial stewardship and savings initiatives will continue to support sound operating cash flow margins when compared to peers, Moody’s said.
24. 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.
Franklin, Tenn.-based CHS, which reported a net loss of $20 million in the first quarter on revenues of $3.1 billion, is on the hunt for new acquisitions just as it is also in discussions to sell off more assets.
“We are considering further opportunities to expand our portfolio,” CEO Tim Hingtgen said in a webcast discussing first-quarter results.
Selling off certain assets would also help balance the system and further reduce some of its debt, President and CFO Kevin Hammons confirmed on the call.
“Moreover, we may give consideration to divesting certain additional hospitals and non-hospital businesses,” CHS said in an SEC filing. “Generally, these hospitals and non-hospital businesses are not in one of our strategically beneficial services areas, are less complementary to our business strategy and/or have lower operating margins. In addition, we continue to receive interest from potential acquirers for certain of our hospitals and non-hospital businesses.”
The health system, which operates 79 hospitals in 15 states, has agreed to sell four more hospitals effective Jan. 1, the filing stated.
CHS recently completed the $92 million sale of Oak Hill, W.Va.-base Plateau Medical Center to Charleston, W.Va.-based Vandalia Health. It also finalized on Jan. 3 an $85 million sale of its former 122-bed facility in Ronceverte, W.Va, also to Vandalia Health.
CHS shares were trading at $6.24 before its results were released. It is currently trading at approximately $3.70.
For the first time in recent history, we saw all three functions of the not-for-profit healthcare system’s financial structure suffer significant and sustained dislocation over the course of the year 2022 (Figure above).
The headwinds disrupting these functions are carrying over into 2023, and it is uncertain how long they will continue to erode the operating and financial performance of not-for-profit hospitals and health systems.
The Operating Function is challenged by elevated expenses, uncertain recovery of service volumes, and an escalating and diversified competitive environment.
The Finance Function is challenged by a more difficult credit environment (all three rating agencies
now have a negative perspective on the not-forprofit healthcare sector), rising rates for debt, and a diminished investor appetite for new healthcare debt issuance. Total healthcare debt issuance in 2022 was $28 billion, down sharply from a trailing two-year average of $46 billion.
The Investment Function is challenged by volatility and heightened risk in markets concerned with the Federal Reserve’s tightening of monetary policy and the prospect of a recession. The S&P 500—a major stock index—was down almost 20% in 2022. Investments had served as a “resiliency anchor” during the first two years of the pandemic; their ability to continue to serve that function is now in question.
A significant factor in Operating Function challenges is labor: both increases in the cost of labor and staffing shortages that are forcing many organizations to run at less than full capacity. In Kaufman Hall’s 2022 State of Healthcare Performance Improvement Survey, for example, 67% of respondents had seen year-over-year increases of more than 10% for clinical staff wages, and 66% reported that they had run their facilities at less-than-full capacity because of staffing shortages.
These are long-term challenges,
dependent in part on increasing the pipeline of new talent entering healthcare professions, and they will not be quickly resolved. Recovery of returns from the Investment Function is similarly uncertain. Ideally, not-for-profit health systems can maintain a one-way flow of funds into the Investment Function, continuing to build the basis that generates returns. Organizations must now contemplate flows in the other direction to access
funds needed to cover operating losses, which in many cases would involve selling invested assets at a loss in a down market and reducing the basis available to generate returns when markets recover.
The current situation demonstrates why financial reserves are so important:
many not-for-profit hospitals and health systems will have to rely on them to cover losses until they can reach a point where operations and markets have stabilized, or they have been able to adjust their business to a new, lower margin environment. As noted above, relief funding and the MAAP program helped bolster financial reserves after the initial shock of the pandemic. As the impact of relief funding wanes and organizations repay remaining balances under the MAAP program, Days Cash on Hand has begun to shrink, and the need to cover operating losses is hastening this decline. From its highest
point in 2021, Days Cash on Hand had decreased, as of September 2022, by:
29% at the 75th percentile, declining from 302 to 216 DCOH (a drop of 86 days)
28% at the 50th percentile, declining from 202 to 147 DCOH (a drop of 55 days)
49% at the 25th percentile, declining from 67 to 34 DCOH (a drop of 33 days)
Financial reserves are playing the role for which they were intended; the only question is whether enough not-for-profit hospitals and health systems have built sufficient reserves to carry them through what is likely to be a protracted period of recovery from the pandemic.
All three functions of the not-for-profit healthcare system’s financial structure—operations, finance, and investments—suffered significant and sustained dislocation over the course of 2022.
These headwinds will continue to challenge not-forprofit
hospitals and health systems well into 2023.
Days Cash on Hand is showing a steady decline, as the impact of relief funding recedes and the need to cover operating losses persists.
Financial reserves are playing a critical role in covering operating losses as hospitals and health systems struggle to stabilize their operational and financial performance.
Not-for-profit hospitals and health systems serve many community needs. They provide patients access to healthcare when and where they need it. They invest in new technologies and treatments that offer patients and their families lifesaving advances in care. They offer career opportunities to a broad range of highly skilled professionals, supporting the economic health of the communities they serve.
These services and investments are expensive and cannot be covered solely by the revenue received from providing care to patients.
Strong financial reserves are the foundation of good financial stewardship for not-for-profit hospitals and health systems.
Financial reserves help fund needed investments in facilities and technology, improve an organization’s debt capacity, enable better access to capital at more affordable interest rates, and provide a critical resource to meet expenses when organizations need to bridge periods of operational disruption or financial distress. Many hospitals and health systems today are relying on the strength of their reserves to navigate a difficult
environment; without these reserves, they would not be able to meet their expenses and would be at risk of closure.
Financial reserves, in other words, are serving the very purpose for which they are intended—ensuring that hospitals and health systems can continue to serve their communities in the face of challenging operational and financial headwinds.
When these headwinds have subsided, rebuilding these reserves should be a top priority to ensure that our not-for-profit hospitals and health systems can remain a vital resource for the communities they serve.
Hospital margins continued to stabilize in March with a slight improvement over February, according to data from Kaufman Hall’s National Hospital Flash Report. However, margins remain below pre-pandemic levels, leaving hospitals in a vulnerable position should a recession or a new public health emergency materialize.
For provider practices, physician productivity increased but the increased revenues could not keep pace expenses, according to the quarterly Physician Flash Report.
While things appear relatively calm at the moment, there remain significant challenges—specifically labor shortages and diminished margins—that could quickly reach the surface if hospitals and health systems are faced with another crisis.
Kaufman Hall experts are seeing increased reliance on advanced practice providers (APPs)—e.g. Nurse Practitioners and Physician Associates—and note that those that hire, retain and deploy this critical workforce most effectively will see more success in the long term.