Category Archives: Operating Performance

Walgreens healthcare division boosts retail giant’s second-quarter earnings

Posted on by • Posted in Consumer Preferences, Consumer-Centric, Consumerism, Net Income, Operating Metrics, Operating Performance, Operating Revenue, Physician Acquisition, Physician Aggregator, Primary Care, Private Equity, Retail Clinic, Retail Healthcare, Retail Pharmacy, Specialty Care • Leave a comment
https://www.healthcaredive.com/news/walgreens-healthcare-division-boosts-retail-giants-second-quarter-earnings/646136/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202023-03-28%20Healthcare%20Dive%20%5Bissue:49137%5D&utm_term=Healthcare%20Dive

Dive Brief:

  • Walgreens’ growing U.S. healthcare segment is continuing to bolster the retail health chain’s financial performance. The business, which includes value-based provider VillageMD, recorded $1.6 billion in sales in the second quarter, an increase of $1.1 billion from last year.
  • VillageMD sales were up 30%, including a boost from its recent acquisition of medical group Summit Health. Specialty pharmacy Shields Health Solutions grew sales 41%, while at-home care provider CareCentrix’s sales were up 25%.
  • Thanks in part to a jump in revenue in its healthcare segment, Walgreens’ results beat Wall Street expectations even as profit declined more than 20% amid lower COVID-19 vaccine volumes and test sales, higher salary costs, opioid litigation charges and costs associated with its $3.5 billion investment in its Summit acquisition.

Dive Insight:

Walgreens has been working to expand its business scope beyond pharmacies to more consumer-centric healthcare, and has acquired a number of companies to build out its growing U.S. healthcare division.

In its earnings results for the second quarter ended Feb. 28, the business reported gross profit of $32 million, as income from Shields and CareCentrix was offset by VillageMD expansion costs. VillageMD added 133 clinics compared to the second quarter last year.

In November, Walgreens agreed to acquire healthcare provider Summit through VillageMD. The almost $9 billion deal closed in January and included investments from Cigna’s health services division Evernorth.

“With the closing of VillageMD’s acquisition of Summit Health, [Walgreens] is now one of the largest players in primary care,” CEO Roz Brewer said in the company’s earnings release on Tuesday.

VillageMD also acquired a Connecticut-based medical group in March for an undisclosed amount. That group, called Starling Physicians, operates more than 30 primary care and multi-specialty practices across the state.

Starling “will contribute heavily to revenue and EBITDA growth in the second half of 2023,” said Walgreens CFO James Kehoe on a Tuesday morning call with investors. “Overall, the primary care business and the specialty care business is doing really, really well.”

Despite the recent deals, Walgreens is moving beyond its peak investment period in healthcare, management said on the call. VillageMD, for example, plans to concentrate growth and investments in specific markets where it can be “hyper-relevant” moving forward, according to Walgreens President John Standley.

Razor-thin hospital margins become the new normal

Posted on by • Posted in Financial Distress, Financial Goals, Financial Instability, Financial Performance, Financial Stewardship, Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Leadership, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue, Restructure • Leave a comment
https://www.beckershospitalreview.com/finance/razor-thin-hospital-margins-become-the-new-normal.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

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.”

AHA: MedPAC’s 2024 Medicare payment recommendation is ‘out of touch with reality’

Posted on by • Posted in American Hospital Association (AHA), Financial Viability, Financially Distressed, Health System, Hospital, Hospital Industry, Medicare Reimbursement, MedPAC, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue • Leave a comment
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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.

Sutter Health ends 2022 with $249M loss, but draws solace from $278M operating income

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https://www.fiercehealthcare.com/providers/sutter-health-ends-2022-249m-loss-draws-solace-278m-operating-income

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.

Providence suffers 2nd downgrade in a few days

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https://www.beckershospitalreview.com/finance/providence-suffers-2nd-downgrade-in-a-few-days.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

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.

14 health systems with strong finances

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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. 

The shrinking book of “profitable” health system business 

Posted on by • Posted in Board, Business Case, Business Model, Business Transformations, Health System, Hospital, Hospital Industry, Leadership, Leadership Vision, Operating Margin, Operating Metrics, Operating Model, Operating Performance, Service Line Profitability, Service Line Rationalization, Strategic Change, Strategic Imperative, Strategic Issue, Strategic Leadership, Strategy • Leave a comment

https://mailchi.mp/89b749fe24b8/the-weekly-gist-february-17-2023?e=d1e747d2d8

This week, a health system CFO referenced the thoughts we shared last week about many hospitals rethinking physician employment models, and looking to pull back on employing more doctors, given current financial challenges. He said, “We’ve employed more and more doctors in the hope that we’re building a group that will allow us to pivot to total cost management.

But we can’t get risk, so we’ve justified the ‘losses’ on physician practices by thinking we’re making it up with the downstream volume the medical group delivers.

But the reality now is that we’re losing money on most of that downstream business. If we just keep adding doctors that refer us services that don’t make a margin, it’s not helping us.” 


While his comment has myriad implications for the physician organization, it also highlights a broader challenge we’ve heard from many health system executives: a smaller and smaller portion of the business is responsible for the overall system margin.

While the services that comprise the still-profitable book vary by organization (NICU, cardiac procedures, some cancer management, complex orthopedics, and neurosurgery are often noted), executives have been surprised how quickly some highly profitable service lines have shifted. One executive shared, “Orthopedics used to be our most profitable service line. But with rising labor costs and most of the commercial surgeries shifting outpatient, we’re losing money on at least half of it.”

These conversations highlight the flaws in the current cross-subsidy based business model. Rising costs, new competitors, and a challenging contracting environment have accelerated the need to find new and sustainable models to deliver care, plan for growth and footprint—and find a way to get paid that aligns with that future vision.

The No. 1 problem keeping hospital CEOs up at night

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https://www.beckershospitalreview.com/hospital-management-administration/the-no-1-problem-keeping-hospital-ceos-up-at-night.html?utm_medium=email&utm_content=newsletter

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.

4 health systems hit with rating downgrades

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https://www.beckershospitalreview.com/finance/4-healthcare-systems-hit-with-rating-downgrades.html?utm_medium=email&utm_content=newsletter

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.

Adventist Health reorganizes; executive job cuts coming

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https://www.beckershospitalreview.com/strategy/adventist-health-reorganizes-executive-job-cuts-coming.html?utm_medium=email&utm_content=newsletter

Roseville, Calif.-based Adventist Health plans to go from seven networks of care to five systemwide to reduce costs and strengthen operations, according to a Feb. 15 news release shared with Becker’s.

Under the reorganization, Adventist Health will have separate networks for Northern California, Central California, Southern California, Oregon and Hawaii.

“Reducing the number of care networks strengthens our operational structure and broadens the meaning and purpose of our network model as well as the geographical span of one Adventist Health,” Todd Hofheins, COO of Adventist Health, said in the release. “This also reduces overhead and administrative costs.”

The reorganization will result in job cuts, including reducing administration by more than $100 million.

“Our commitment to rural and urban healthcare remains steadfast, and we are expanding to other locations to invest and transform the integrated delivery of care,” Kerry Heinrich, president and CEO of Adventist Health, said in the release.

Specifically, the health system has a recently approved affiliation agreement for Mid-Columbia Medical Center in The Dalles, Ore., to join Adventist Health, the health system said. The agreement is pending final regulatory and state approvals.

Meanwhile, Adventist Health filed a Worker Adjustment and Retraining Notification Act notice with California officials Feb. 15. 

Adventist Health will eliminate job functions and positions for employees at its corporate office campus along with some remote roles, the notice states.    

Layoffs from Adventist Health began Feb. 1 and will continue into April, according to the notice. 

Adventist Health said it has provided all affected employees 60 days’ written notice of the layoff. The health system expects about 59 employees to be separated from employment with Adventist Health. 

Employees affected by the layoffs include administrative directors, directors, managers and project managers, among others.

“We recognize that these changes impact people’s lives and want to respect each affected individual,” Joyce Newmyer, chief people officer for Adventist Health, said in the health system’s release. “We will make every effort to identify other opportunities for team members impacted.”