Providence’s operating loss grows to $1.1B for 2022

Providence, a 51-hospital system headquartered in Renton, Wash., ended the first nine months of 2022 with an operating loss of $1.1 billion, according to financial documents released Nov. 14. 

The system said in a Nov. 11 news release that its third quarter financial results showed the “ongoing impact of inflation, the national healthcare labor shortage, delayed reimbursement from payers, global supply chain disruptions and financial market weakness.”

For the nine months ended Sept. 30, Providence’s operating revenues were $19.6 billion on a pro forma basis, up from $18.8 billion during the same period last year, according to the report. The pro forma results exclude the operations of Newport Beach, Calif.-based Hoag Hospital. Providence and Hoag ended their affiliation in January. 

Operating expenses over the first nine months of the year were $20.7 billion, a 7 percent increase over the same period in 2021 on a pro forma basis. This includes a 9 percent increase in salary and benefits due to the cost of agency staff, overtime and wage increases, according to the release. It also includes a 6 percent increase in supply costs, driven by an 8 percent increase in pharmaceutical spending. 

Providence said financial market weakness and volatility drove investment losses of $1.4 billion for the first nine months of 2022, bringing the system’s unrestricted cash and investments to $9.1 billion. 

“Healthcare delivery systems across the country face unprecedented challenges, and Providence has not been immune,” Providence President and CEO Rod Hochman, MD, said in the release. “However, just as we have for more than 165 years, we will continue to be here to meet the health care needs of our communities. While we still have a journey ahead of us, we are moving in the right direction and are beginning to see signs of renewal this quarter. My deepest gratitude to the caregivers of Providence for continuing to focus on the Mission and serving those in need, especially those who are most vulnerable, with excellence and compassion.”

Providence’s operating loss grows to $934M as it shrinks leadership team

Providence, a 51-hospital system, ended the first six months of this year with an operating loss, according to financial documents released Aug. 15. 

For the six months ended June 30, the health system reported revenue of $12.7 billion, up 2 percent year over year on a pro forma basis. The pro forma results exclude the operations of Newport Beach, Calif.-based Hoag Hospital. Providence and Hoag ended their affiliation in January. 

Providence’s expenses also increased. For the six months ended June 30, the health system reported operating expenses of $13.6 billion, up 8 percent year over year on a pro forma basis. Higher wages, increased agency staffing costs and overtime pushed Providence’s labor costs higher year over year, the system said in an earnings release

Providence ended the first two quarters of this year with an operating loss of $934 million, compared to an operating loss of $94 million in the same period a year earlier. The system’s second-quarter operating loss totaled $424 million. 

Providence, which has system offices in Renton, Wash., and Irvine, Calif., released its financial results a month after announcing a plan to shrink its leadership team and roll out a new divisional structure. 

“Creating a more sustainable model of health care by 2025 has been a key part of our vision since before the pandemic,” Providence CFO Greg Hoffman said in the earnings release. “But it has become even more imperative today as health systems across the country face a new reality. Alongside our investments to simplify processes and modernize technology, streamlining our leadership and administrative structure is another way we will ensure we are operating as efficiently as possible, so that we can keep resources focused on direct patient care, especially for those who are most vulnerable.” 

For the six months ended June 30, Providence invested $1 billion in community benefit, compared to $813 million in the same period of 2021, according to the earnings release. 

“Having served the Western U.S. for more than 165 years, Providence has lived through other economic downturns, past pandemics, and periods of political and social unrest. With the steps we are taking to respond to the times, we will continue supporting caregivers and serving our communities throughout these challenging times, with the mission of Providence enduring for generations to come,” Providence President and CEO Rod Hochman, MD, said in the earnings release. 

Kaiser posts $1.3B loss in Q2

Kaiser Permanente reported lower revenues in the second quarter of this year than in the same period a year earlier, and the Oakland, Calif.-based healthcare giant ended the period with a net loss. 

Kaiser, which provides healthcare and health plans, reported operating revenue of $23.47 billion in the second quarter of 2022, down from $23.69 billion in the same quarter of 2021. The organization’s expenses climbed from $23.34 billion in the second quarter of last year to $23.38 billion in the same period this year. 

“Much like the entire health care industry, we continue to address deferred care while navigating COVID-19 surges and associated expenses,” Kathy Lancaster, Kaiser executive vice president and CFO, said in an Aug. 5 earnings release. “Kaiser Permanente’s integrated model of providing both care and coverage enables us to meet these challenges as demonstrated by our moderate increase in year-over-year operating expenses for the second quarter.”

Kaiser ended the second quarter of this year with operating income of $89 million, down from $349 million a year earlier. 

After factoring in a nonoperating loss of $1.4 billion, Kaiser reported a net loss of $1.3 billion for the second quarter of this year, compared to net income of $2.97 billion in the same period last year. Kaiser said the loss was largely attributable to market conditions. 

This is the second quarter in a row that Kaiser has reported a loss. The organization closed out the first quarter of this year with a net loss of $961 million, compared to net income of $2 billion in the same quarter of 2021. 

Sutter Health’s rising expenses and rough investments yield a $457M net loss for Q2 2022

Updated on Aug. 5 with comments from Sutter Health.

A $457 million net loss for the quarter ended June 30 has brought Sutter Health even deeper into the red for 2022, according to new financial filings.

The Sacramento-based nonprofit health system brought in $3.49 billion in total operating revenues from the quarter, down slightly from the prior year’s $3.51 billion.

At the same time, the system’s operating expenses grew from $3.41 billion in the second quarter of 2021 to $3.55 billion in the most recent quarter, driven by $30 million and $151 million year-over-year increases in salaries and purchased services, respectively. The latter includes the increased professional fees being felt by labor-strapped systems across the country.

These led the system to report a $51 million operating loss for the quarter as opposed to the $106 million operating gain from last year’s equivalent quarter.

“Poorly” performing financial markets also took a toll on Sutter’s numbers. The system’s quarterly investment income dipped from $251 million to $56 million from 2021 to 2022. A $495 million downward change in net unrealized gains and losses on its investments was also a stark reversal from the prior year’s $270 million increase.

The new numbers cement what was already looking to be a tricky year for Sutter Health, which had previously reported a $184 million net loss for its opening quarter.

Despite a 1.5% year-over-year operating revenue increase to $7.05 billion for the opening six months, a 1.7% year-over-year operating revenue bump places the system’s year-to-date income at $44 million (0.6% operating margin), slightly below last year’s $57 million (0.8% operating margin).

However, market struggles through both quarters and a $208 million loss tied to the disaffiliation of Samuel Merritt University now has Sutter sitting at a $641 million net loss for the opening half of 2022. The system was up $825 million at the same time last year.

Sutter’s finances have stabilized, but our year-to-date numbers show we still have more affordability work ahead as we strive to best position Sutter Health to serve our patients and communities into the future,” the system wrote in an email statement. “We are grateful for our employees and clinicians who have worked diligently over the last several years to help bring our costs down—at the same time managing through the pandemic and continuing to provide high-quality, nationally recognized care.”

Sutter noted in the filing that it is or will be in labor negotiations with much of its unionized workforce, as 43% of its contract agreements have either expired or will be running their course within the year.

The filing also included notice of a handful of legal matters that have yet to be resolved. These include an antitrust verdict in favor of Sutter that is being appealed by the plaintiff, a lawsuit regarding an alleged privacy breach of two anonymous plaintiffs and two separate class-action complaints regarding employee retirement plan funding, among others.

“The organization continues to face financial headwinds like inflation and increased staffing costs, as evidenced by our near breakeven operating margin,” Sutter said in a statement. “Even still, we are encouraged that independent ratings agencies have recently acknowledged our efforts to date. In the second quarter, Moody’s, S&P and Fitch all affirmed the system’s existing ‘A’ category bond ratings.”

Much of Sutter’s pains are being felt across the industry. A recent Kaufman Hall industrywide report showed only marginal relief from expenses and middling non-COVID volume recovery through June, while a Fitch Ratings update on nonprofit hospitals warned that these challenges and broader inflation pressures will likely weigh down the sector through 2022.

Inpatient payment increase not enough, AHA says

https://www.healthcarefinancenews.com/news/inpatient-payment-increase-not-enough-aha-says?mkt_tok=NDIwLVlOQS0yOTIAAAGGA2hNPoWk8cdzEHcBC5xk1t_79ltx5DUnzCdiUWpAvrtC-_vON29agi9pNZf0kUGl9cKeinq1FXBXdCEr_RCHDNPIsIG9WjhKw1KLwH8

Hospitals are forced to absorb inflationary expenses, particularly related to supporting their workforce, AHA says.

The Centers for Medicare and Medicaid Services’ increase in the inpatient payment rate for 2023 is welcome but not enough to offset expenses, according to the American Hospital Association.

CMS set a 4.1% market basket update for 2023 in its final rule released Monday, calling it the highest in the last 25 years. The increase was due to the higher cost in compensation for hospital workers.

The final rule gave inpatient hospitals a 4.3% increase for 2023, as opposed to the 3.2% increase in April’s proposed rule.

WHY THIS MATTERS

CMS used more recent data to calculate the market basket and disproportionate share hospital payments, a move that better reflects inflation and labor and supply cost pressures on hospitals, the AHA said.

“That said, this update still falls short of what hospitals and health systems need to continue to overcome the many challenges that threaten their ability to care for patients and provide essential services for their communities,” said AHA Executive Vice President Stacey Hughes. “This includes the extraordinary inflationary expenses in the cost of caring hospitals are being forced to absorb, particularly related to supporting their workforce while experiencing severe staff shortages.”

The AHA would continue to urge Congress to take action to support the hospital field, including by extending the low-volume adjustment and Medicare-dependent hospital programs, Hughes said.

In late July, Senate and House members urged CMS to increase the inpatient hospital payment.

Premier, which works with hospitals, also said the 4.3% payment update falls short of reflecting the rising labor costs that hospitals have experienced since the onset of the pandemic. 

“Coupled with record high inflation, this inadequate payment bump will only exacerbate the intense financial pressure on American hospitals,” said Soumi Saha, senior vice president of Government Affairs for Premier.

THE LARGER TREND

Recent studies show hospitals remain financially challenged since the COVID-19 pandemic’s effect on revenue and supply chain and labor expenses. Piled onto that has been inflation that has added to soaring expenses.

Hospital margins were up slightly from May to June, but are still significantly lower than pre-pandemic levels, according to a Flash Report from Kaufman Hall.

The effects of the pandemic on the healthcare industry have been profound, resulting in the creation of new business models, according to a report from McKinsey.

Transformational change is necessary as hospitals have been hit hard by eroding margins due to cost inflation and expenses, Fitch found.

HOSPITALS SEE NEGATIVE MARGINS FOR SIXTH CONSECUTIVE MONTH

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

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

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

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

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.