Employers added a stunning 528,000 jobs in July, while the unemployment rate ticked down to 3.5%, the lowest level in nearly 50 years, the Labor Department said on Friday.
Why it matters: It’s the fastest pace of jobs growth since February as the labor market continues to defy fears that the economy is heading into a recession.
Economists expected the economy to add roughly 260,000 jobs in July.
Job gains in May and June were a combined 28,000 higher than initially estimated.
The backdrop: The data comes at a delicate time for the U.S. economy. Growth has slowed as the Federal Reserve raises interest rates swiftly in an attempt to contain soaring inflation.
Many economists and Fed officials alike are pointing to the ongoing strength of the labor market as a sign the economy has not entered a recession.
Policymakers want to see some heat come off the labor market. They are hoping to see more moderate job growth as the economy cools, in order to ease inflation pressures.
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.
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.”
The national uninsured rate reached an all-time low of 8 percent in the first quarter of 2022, according to an HHS report released Aug. 2.
The report analyzed data from the National Health Interview Survey and the American Community Survey, according to an Aug. 2 HHS news release.
Three things to know:
1. The previous record low uninsured rate was 9 percent, set in 2016.
2. The uninsured rate among adults ages 18-64 was 11.8 percent in the first quarter of 2022. The uninsured rate for children ages 0-17 was 3.7 percent.
3. About 5.2 million people have gained health coverage since 2020. Gains in coverage are concurrent with the implementation of the American Rescue Plan’s enhanced ACA Marketplace subsidies, the continuous enrollment provision in Medicaid, several state Medicaid expansions and enrollment outreach efforts.
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.
As companies navigate having both in-office and at-home workers, the role of the traditional office is being reconsidered.
Having less people in an office every day could mean cutting space, but those spaces need to better suit the workforce of today, executives say.
How that experience evolves could be the difference between workers coming back to the office smoothly or leaving their jobs.
As companies and workers continue to try to figure out where and how work will take place in a hybrid environment, the costs being spent on existing office spaces previously built around the 9-to-5, five-day workweek are being closely examined.
Flexibility has become the buzzword for both sides of the employee-employer power dynamic. Workers have been leveraging the empowerment gains they’ve made amid the pandemic and a tight labor market to maintain the personal time that has come with working from home. Companies, many fearful of eroding culture that could increase turnover as well as stifling innovation by having a mostly remote workforce, have tried to meet workers somewhere in the middle by gently prodding, not pushing, workers back to the office.
The question becomes then, how does that impact budgeting and spending on typically costly workspaces when a large portion of your workforce won’t be there every day, if it all? Is there an opportunity to cut costs, or do those spaces now require additional investment to try to draw workers who are at home back into the office?
Scott Dussault, the CFO of HR tech company Workhuman and himself a pandemic-era hire, is seeing the change firsthand.
“I always quote Larry Fink’s [2022] letter [to CEOs] where he said no relationship has been changed more by the pandemic than the one between employer and employee; that’s never going to change and we’re never going back,” Dussault, a member of the CNBC CFO Council, said. “The concept of 9-to-5 in the office five days a week is gone – the keyword is going to be flexibility.”
For many companies that means retrofitting offices to meet this new normal and employee demands, while also investing in other tools to make sure connections are still being made efficiently – efforts that could mean spending more money even if square footage or leases are adjusted.
“I’m not so sure it’s going to be a cost negative,” Dussault said. “I’m not sure if people are going to take less real estate; they’re just going to change the way that real estate works.”
Workhuman is currently coming towards the end of its lease in its Boston-area headquarters, and Dussault said the company is considering expanding its space, which would provide a “clean slate” to adjust to this new working environment.
He recalled his time at a job in the 1990s where it was a “football field of cubicles” – the kind of situation where you could “go to work and sit in a cube all day and never interact with anybody – you truly could lose that connection.”
Dussault said he sees the office becoming what he calls a “collaboration destination,” part of a hybrid environment where while you might work from home on days where you’re catching up on work or emails, the office can serve as a space that is “all about connection.”
“You’re going to see a lot more open spaces, collaboration spaces, conference rooms, meeting rooms, break areas where people can sit and get together,” he said. “It’s going be focused on connection which I think frankly is positive and it is evolution – it’s going to be about making those connections more meaningful.”
That would mean investing more in things like a gym, where employees could take a physical break, or other spaces that would provide a place to take an emotional break or meditate, Dussault said, something he said results in costs shifting “from one bucket to another.”
“We need to understand and recognize that when employees are home and productive, they have those things, and we need to try to make sure that those things exist in the office as well,” he said.
That also puts a further onus on the investment in digital tools, because there still needs to be ways for workers to connect with peers even when they’re not in person.
“Companies always talk about how important employees are and how employees are the most important investment – they haven’t always acted that way,” he said. “This is a good thing that’s come out of the pandemic.”
Neal Narayani, chief people officer at fintech company Brex, noted that in 2019 the company had people coming into offices five days a week in San Francisco, New York, Vancouver, and Salt Lake City. At that time, “nobody worked from home, because it was seen as a negative,” Narayani said. But as the pandemic forced employees to work from home, where they successfully took on several large projects, that view shifted.
“We recognized very quickly that we were able to actually work more productively and faster, and that video collaboration is a very productive tool when you don’t have to commute somewhere to search the office for a conference room,” he said.
With a belief that a remote-first approach was the future of work, Brex leaned in. Of the company’s more than 1,200 employees, 45% are fully remote. The company still maintains those four office location hubs where workers can go if they want, but the company has altered its approach so that every process is designed for remote workers.
That also changed the thinking that went into those spaces as Brex planned out its growth.
“When you unwind the real estate costs, we were able to look at how many people would come into an office if we were to make it fully optional, and it was about 10%,” Narayani said. “So, we were able to move into a 10%, maybe even less, real estate option, and then take the rest of those dollars and repurpose that towards travel, towards talent development, towards diversity and inclusion efforts, and towards anything else that makes the employee experience better.”
“It turns out to be a much better experience for us because that real estate cost was very high, and those markets are very expensive,” he added.
Roughly a third of the cost of the company’s previous real estate strategy has been put into the company’s new off-site strategy, Narayani said, with other portions of that being used to pay for the four office spaces and other co-working spaces.
Larry Gadea, CEO of workplace technology company Envoy, said that he thinks many companies are looking at ways they can reduce costs right now, with office space spending as one area potentially ripe for cuts.
However, Gadea warns that “people need to be together with each other, they need to know each other.”
“They need to have a sense of purpose that’s unified, and you need to bring people together for that,” he said. “How are you going to bring people together when they’re all around the country? I think that there is a substantial amount of people thinking they’re going to be saving money on real estate, but United and other airlines and Hilton and other hotels are getting it instead.”
Gadea said that as companies try to manage a tight labor environment as well as other market challenges, more time needs to be spent on “thinking about how to bring teams together.”
“The number one reason that most people stick with a company is that they love the people they work with,” he said. “It can be a lot harder to love those people if you don’t ever see them because they turned off their video on Zoom or if they don’t even know them at all.”
HENRY KOTULA 