- The American Hospital Association and hospital leaders say recent financial trends are unsustainable for many organizations.
- In the near term, policymakers can take specific steps to help struggling hospitals.
- The supply and cost of labor are a major drag on the industry, and reimbursement isn’t keeping pace.
The CEO of a rural hospital recently described the state of the U.S. hospital industry in stark terms.
“If something isn’t done to put a more equitable ratio between the operating cost of a hospital and the reimbursements that we receive, it could literally be the collapse of the healthcare system in America,” Peggy Abbott, CEO of Ouachita County Medical Center in Camden, Arkansas, said during a media call
To make the case that additional support is needed, especially now that the Provider Relief Fund is out of money, the American Hospital Association (AHA) organized the Sept. 15 call that featured Abbott and other executives. The AHA and Kaufman Hall also released a report on the precarious financial situation of hospitals.
Rick Pollack, president and CEO of the AHA, said Congress can help by:
- Extending funding programs that are scheduled to expire Sept. 30 for designated Medicare-dependent hospitals and low-volume hospitals
- Holding health plans accountable for business practices that strain hospital resources
- Codifying the regulatory relief provided by pandemic waivers that “eliminated red tape” and allowed for the expansion of telehealth services and hospital-at-home programs
- Providing relief on the 2% Medicare payment sequester and a separate 4% across-the-board cut that could take effect Jan. 1
“The fact is that we are now dealing with the aftershocks and the aftermath of the most significant public health crisis in a century,” Pollack said, noting that during the week of the call, more than 19% of hospitals anticipated facing a critical staffing shortage.
An unsettling financial picture
The new report estimates that hospital margins for the remainder of 2022 will be at least 37% lower than pre-pandemic levels. Slightly more than half of hospitals are projected to finish with negative margins in what Lisa Goldstein, senior vice president with Kaufman Hall, said will be “the worst year since the start of the pandemic.”
The margin pressures are driven by the end of pandemic-focused government funding and by expenses, which are projected to increase by $135 billion compared with 2021. Labor expenses alone will be $86 billion higher, according to the report.
Jack Lynch, president and CEO of Main Line Health in the Philadelphia area, said his organization in FY22 incurred more than $98 million in unbudgeted premium pay for labor expenses, including to cover travel-nurse pay and overtime and surge bonuses. The hike in compensation was necessary to accommodate a 10% bump in patient days.
When adjusting for case mix index, expense per admission at Main Line Health has increased this year by 26%, driven by a 32% increase on the labor side. Despite a 14% jump in revenue, the organization lost $102 million in FY22.
“In July, we lost $20 million in one month in a fiscal year where we have budgeted a $60 million loss,” Lynch said. “These losses are unsustainable and will impact our ability to meet the expectations and healthcare needs of those in the community.”
Dealing with staffing woes
The labor situation poses concerns beyond the budgetary impact. Regardless of what they can pay, hospitals are having an increasingly difficult time filling clinical and nonclinical roles.
Mike Slubowski, president and CEO of Trinity Health, described the worker shortage as “nothing like we’ve seen before.” His organization has a vacancy rate of 16% for registered nurses, totaling almost 3,900 positions, and 14% for clinical support staff.
“We’re doing all we can, including innovating how we deliver patient care, but it isn’t enough,” Slubowski said.
Trinity Health has had to terminate certain services, reduce capacity in specialties such as behavioral health and close some of its long-term care sites, Slubowski said. Nationally, 12% of the system's beds, 5% of operating rooms and 13% of emergency departments are offline. In some markets, the shares are 20% or more of beds and half of operating rooms and diagnostic services.
He said reports abound of “family members scheduling half a year out for specialty care; rescheduling surgery multiple times; waiting weeks for rehab, mammography and office visits [and] days for blood work and other labs; and waiting many hours for emergency department [ED] care. These stories are reality today.”
In Trinity Health's EDs, a concerning trend is that the rate of patients who leave before being seen has doubled compared with early 2020. During a small COVID-19 surge at one of the system’s facilities, in Boise, about 30 patients were boarded in the ED rather than admitted.
“Most U.S. hospitals are only one COVID-19 or flu surge away from a crisis,” Slubowski said.
Lynch said Main Line Health’s EDs have become holding areas for patients waiting for beds in behavioral health facilities. Total ED visits at his organization increased by 15% this year, owing in part to the closures of two hospitals in the market and at least one other hospital’s ED in late 2021.
Inadequate reimbursement rates
Health plans aren’t offering a viable level of financial support, limiting annual rate increases to the low single digits over the last decade, Lynch said. Many commercial contracts were negotiated before the pandemic and have not been adjusted.
“I don’t think there’s been any recognition by the payers of the cost increases that healthcare has experienced,” Lynch said. “The flip side is they’re tired of paying for more than what they believe is their fair share. When they look at the percentage of their total-rate payments versus what Medicare is paying, they’re very frustrated as employers continue to pressure them to lower their cost of care.”
Abbott said Ouachita County Medical Center persuaded one major insurer to negotiate on payment rates, although the outcome of those talks is pending. Slubowski said Trinity Health would happily move into risk-based contracting as a way to manage the cost of care, but health plans don’t seem inclined to offer such arrangements.
Government payers represent an even bigger concern. Main Line Health loses $150 million per year on Medicare services and receives only $0.60 on the dollar to cover Medicaid services.
“In other businesses, this product line would be sunsetted,” Lynch said. “Obviously, caring for Medicare and Medicaid beneficiaries is part of why we exist, and sunsetting these services is out of the question.”
Trying to make ends meet
“Revenue eventually has to equate to cash,” Abbott said. “We have never had a wide margin anyway, but we have, it seems to me, a nonexistent margin today. I’m humbled to say it, but we are truly operating on a week-to-week cash basis, and I think many other rural independent hospitals are in that same state.”
Limited cash availability can have major ramifications, Slubowski said.
“Not-for-profit healthcare organizations have to have strong balance sheets not only to reinvest in their future, but it frankly is the liquidity that we need to be able to borrow funds in the market,” he said.
The reverberations are being felt in communities, according to the hospital leaders. For example, Abbott said Ouachita County Medical Center this year made the “heart-wrenching” decision to close a rural health clinic located 20 miles from the hospital.
It’s “a very poverty-stricken community where individuals are challenged to get access to care from a transportation standpoint,” she said. “It was operating at such a financial loss and actually had been for so many years, but as part of our mission, we had continued to operate it. But as our hospital was being hit so hard this year, we could no longer justify taking money from the hospital in order to keep supporting that one small clinic.”