Hospital expenses for the month of March outpaced revenue growth.
Hospital financials are making a slow crawl toward stability, but organizations are still facing high expenses and economic pressures, according to the latest Kaufman Hall data.
The median year-to-date operating margin index for hospitals was flat in March but did show a small improvement from February, according to the data. Margins are continuing to stabilize; however, they are still below pre-pandemic levels. Kaufman Hall says this leaves hospitals in a "vulnerable position" in the event of a recession or another public health crisis.
"While it appears that hospital finances are stabilizing, that doesn’t mean that all is well," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in the report. "Under the seemingly calm surface, there are significant challenges—especially labor shortages and diminished margins—that could quickly reach the surface should another crisis arise."
Expenses for the month of March outpaced revenue growth, according to the Kaufman Hall data. Inflation has been a heavy stone around the neck of hospitals. Non-labor expenses including drug and supply costs rose by 6% from February. As productivity rises, so does the total direct expense per provider full-time equivalent. FTE saw a 17% rise in the first quarter of 2023.
Although there was an increase in productivity and revenues for the first quarter of 2023, there was a 12% year-over-year increase in median investment/subsidy per provider FTE to $236,842. This represents an increase twice the rate of inflation. This is due to the increased costs of materials and labor, according to Kaufman Hall experts.
"As labor pressures continue, we’re seeing more and more reliance on advanced practice providers—including nurse practitioners and physician associates, Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said in the report. "Two of every three providers that will enter the workforce this year will be an advanced practice provider. Provider groups that hire, retain, and deploy this corner of the workforce most effectively will see the most success in the long-term."
Providing care for the poorest Alabama communities puts DCH Health System in a tougher financial position than its peers, resulting in the need for unique investments.
As healthcare providers continue to deal with the ongoing economic challenges caused by the pandemic, labor issues, inflation, expenses, and more, CFOs leading the financial initiatives for these organizations must reevaluate how they invest in order to make the best decisions for the hospital’s well-being as well as the patients—especially when those patients are some of the poorest members of the community.
That is the case at DCH Health System, a Tuscaloosa, Alabama-based healthcare provider with about $560 million in annual revenue. The organization's CFO Nina Dusang says it can be challenging to find the right balance when investing in the organization’s technology while making sure the community of patients has the most high-quality care available.
Dusang recently connected with HealthLeaders to discuss hospital spending, tech investments, and patient care.
HealthLeaders: Tell me about DCH Health System and its mission.
Nina Dusang: DCH Health System is comprised of three acute care facilities, a long-term care facility, and some employed physician practices, as well as a few other peripheral joint ventures. DCH is a mid-sized health system; our two largest facilities are in Tuscaloosa, Alabama. We are designated as a sole community hospital, and what that means is we are the caretakers for our community. We care for not only Tuscaloosa County but for about 11 counties that surround us. Those counties are some of the poorest counties in Alabama. People can get fooled by seeing the University of Alabama here in Tuscaloosa, and they think that we must be a rich health system with lots of commercial payers, but we are not. We serve the poorest in Alabama and our payer mix reflects that as do our financials.
With our payer mix, it is a struggle to provide all the care our community needs but we are the [only] care for our community, so it is not an option to only pursue services that are considered profitable. We have tertiary care facilities. We provide trauma care. We do pretty much everything except burns, transplants, and specialty children's care. We are the hub and spoke here for this community. We're considered an authority, which is a public hospital designation in Alabama. We are not owned directly by the city proper or the county, but we are owned by the citizens as a whole. With that comes an awesome responsibility. We take our mission very seriously to provide the best health care that this community can have and to improve the health and access to care of our underserved communities.
HealthLeaders: How do your financial challenges differ from other health systems?
Dusang: What differs is the fact that we don't have competitors. We accept all patients, and we do that everywhere for any kind of care that is needed. Our owned physician clinics, as well, follow our charity care policy, and we take 100% of all payers and all patients including uninsured patients across the system. We also have one of the lowest wage indexes in the country. Blue Cross of Alabama is one of the lowest, if not the lowest, paying Blue Cross plans in the country. So, we start from behind the eight ball, to begin with, before we even consider the fact that we serve the poorest counties in Alabama.
Financially, we are starting out from a negative position and trying to claw our way out so that we can make sure we serve our community. For us, it's about being stewards of our community's money. So, looking at the entire image is extraordinarily important. We don't believe we can cut our way to prosperity when I say that at all. But we do believe rigorous good business practices and cost containment are of utmost importance, while we try to find pockets of profitable business. However, cost is something we will always have to focus on.
HealthLeaders: How is DCH making cost a priority?
Dusang: To the point of efficiency and driving costs down, the real next horizon for everybody is not pricing. We've all done that with GPOs. We’re constantly looking at pricing, but you're not going to be able to cut your way out of something. The biggest thing right now that we have to have is efficiency in terms of cost; in other words—utilization. Utilization comes in many forms. You could have too high of a length of stay; the patient is just staying longer than they clinically need to and so has added cost on the tail end of the stay that is unnecessary. It could be over-ordering of tests. It could be added cost by using an IV medicine instead of a by-mouth medicine that is cheaper, but it's the exact same medicine. And I have had these discussions with physicians. I've had several physicians in particular talk to me to say 'Hey, I want to participate in helping the organization be sustainable. But I have no clue how to do it. If you told me that the other medicine was cheaper than the IV medicine if I agreed that both of those had the same clinical efficacy. I would of course choose the lower price, but I have no way to know that.' That was the focus of a lot of the discussions we were having. How do we deal with utilization when our clinicians, especially providers, don't know the cost of care? And that's where Illumicare came in.
HealthLeaders: What is Illumicare and why did DCH decide to invest in this tool?
Dusang: Through this technology—this app—we’re providing physicians with the data they need. We're going to take our cost data, in particular, our pharmacy and lab costs, and provide clinicians with concrete costs that they can pull in and marry up with the medical orders. When a physician would go to order an IV medicine, there would be a pop-up that says the medicine costs—I’m making this up—$50 a bag, whereas the PO medicine, if appropriate for the patient, is only $3 a tablet. But if the clinician doesn’t feel the PO medicine is appropriate, they can cancel out and go with the IV medicine.
What was so intriguing about this is the idea that we could nudge providers with the information they've actually been wanting for a while that we've never had a way to provide before in real-time. We could always sit with somebody after the fact three months later and say 'here’s what you need to change going forward.' But that kind of retrospective review is just not helpful. It doesn't stay in their mind as they're doing their day-to-day work. Nudging them while they work is one of the most effective things an organization can do.
The other thing technologies like this do is that they are visually more like everyday apps, which makes them much easier to implement. Today's training in the new technology is much faster than it ever was. In the past, we would be in classrooms for days, training them on point-and-click tools. Now it's pretty intuitive if you know how to use your phone. That's the other advantage of the new technologies, is the fact that we've grown up on smartphones. Our lives are now run on phones and so anything that mirrors that look and feel makes the implementation faster.
HealthLeaders: Where would you like to see DCH make future tech investments?
Dusang: This is probably cliché, and you probably hear it from everybody, but I think the two areas that have the most potential are AI and bots. There could be huge gains in our revenue cycle by using that particular technology. I'm very excited about the potential of what we're going to be able to do there, but we have to do our due diligence as an organization and find the right partner.
We have to consider the pricing versus the efficiency we will gain. I have spoken with several revenue cycle bot companies, and it is very clear that we’re just in the beginning because the pricing is all over the board. One company wanted to charge me a percent on improvement, and I would have ended up paying more than it would cost to hire 10 people to do the work—that’s not efficient. A lot of technology is overpriced for what you're gaining. And again, as CFO I have to see our bottom line improve so that we can sustain ourselves and be able to provide better access to care, more care for more people, kept here locally.
Patients living in rural communities in the U.S. have worse health outcomes than those living in more populated areas.
Patients living in rural communities in the U.S. have worse health outcomes than those living in more populated areas, according to new research by health economist Joshua Gottlieb of the University of Chicago Harris School of Public Policy. Because of the lack of financial prowess, these organizations are also in greater danger of closing when compared to their larger counterparts. About 30% of all rural hospitals in the country are at risk of closing, according to the Center for Healthcare Quality and Payment Reform, due to losses on patient services and low financial reserves.
To discover how rural providers can offer their communities better quality healthcare, Gottlieb and his colleagues analyzed the relative effects of certain policy solutions on inequities in healthcare quality between urban and rural areas. They found that making greater investments in things like urban centers and transportation can have a profound impact on the quality of care provided to rural communities.
But healthcare providers alone can’t shoulder the costs of such projects on their own, while they can make contributions, it is up to policymakers to help get people in rural communities the high-quality care they need, according to the research. Additionally, the research also found that policymakers are stuck with a trade-off between concentrating medical care production in larger regions where they are more efficient at producing services, and promoting healthcare access in rural communities.
Investments in production and travel subsidies can boost healthcare quality and access, but will have different impacts on patients and providers, as well as neighboring regions, the research says.
"Healthcare produced in large regions is higher quality. Policies to reallocate care to smaller regions may impact patients’ access to healthcare in unexpected ways," the research says. "Traditional production subsidies in small, underserved areas help healthcare producers (e.g., doctors) more than patients in those areas. Patient travel also plays a meaningful role in enabling access to higher-quality, more experienced, and specialized care. Policymakers should consider travel subsidies rather than only production subsidies to increase access to care for underserved patients."
The healthcare provider reported first-quarter financials that came in below expectations.
Community Health Systems, a Franklin, Tennessee-based healthcare system with over 80 hospitals in 44 markets, announced its 2023 first-quarter financial results, which did not meet analysts' expectations.
Net operating revenues for the first quarter totaled $3.108 billion, beating analysts’ estimates by just 1.3%, according to a report by Simply Wall Street. Net loss attributable to Community Health Systems stockholders was $(51) million, or $(0.40) per diluted share—missing expectations by 145%. Adjusted EBITDA was $335 million. On a same-store basis, admissions increased by 4.8% and adjusted admissions increased by 9.4%, compared to the same period in 2022.
"Our first quarter results include solid growth metrics and other promising indicators that demonstrate core demand for healthcare services is returning and that we are making progress with our initiatives and investments to capture volume," Community Health Systems CEO Tim Hingtgen said on the earnings call. "Some other more challenging dynamics such as payer mix changes and increased medical specialist fees affected our earnings in the quarter despite our ability to favorably manage other controllable expenses."
Dominic Nakis will work with outgoing CFO Brian Dean to ensure a smooth transition.
Sutter Health, a not-for-profit integrated health delivery system headquartered in Sacramento, California, with 24 acute care hospitals and over $14 billion in total revenue, has appointed Dominic Nakis as senior vice president and chief financial officer.
Nakis will serve as CFO for the next 12 to 18 months, while Sutter Health searches for a permanent replacement for departing CFO Brian Dean. Nakis will step into the role on May 15, working closely with Dean until his exit from the organization on July 1.
Nakis most recently served as CFO for Advocate Aurora Health. With 2022 revenue of $14.5 billion, Advocate Aurora Health which was based in the greater Chicago and Milwaukee areas is comprised of 26 hospitals and more than 500 sites of care, with 75,000 employees including 10,000 physicians.
"Dominic comes to Sutter with more than three decades of financial and leadership experience in the healthcare industry," Warner Thomas, Sutter Health president and CEO said in a release announcing Nakis’ appointment. "I am pleased we will have Dominic’s expertise to lead our financial operations and strategic perspective to support the organization’s goals of increasing access for our patients through ambulatory expansion plans and other investments."
UNC Health, a Chapel Hill, North Carolina-based healthcare system, has appointed William Bryant as its new chief financial officer—effective May 1, 2023. Bryant has previously held a variety of financial leadership positions with UNC Health.
"I’m incredibly excited and grateful for the opportunity to serve as UNC Health’s CFO," Bryant said in a release announcing his appointment. "As a native of eastern North Carolina, UNC Health’s mission to improve the health of all North Carolinians has deep meaning to me. To be able to rejoin the health system in this capacity to help lead and financially enable the achievement of that mission is pretty special."
Bryant first joined UNC Health in 2016 as CFO of UNC High Point Regional Health. During his previous tenure, Bryant assumed more senior roles within UNC Health including System VP of Supply Chain, CFO of UNC Health Shared Services, and CFO of UNC Hospitals. Last year, Bryant was named CFO of Qualderm Partners in Brentwood, Tennessee, a major dermatology provider operating practices across 17 states from Pennsylvania to Arizona. Since December, Bryant served as Chief Administrative Officer for Qualderm.
"We are very excited to welcome Will Bryant back to the UNC Health family," UNC Health CEO, Dr. Wesley Burks said in the release. "He has a strong financial acumen and a proven track record with us. Will is also highly regarded as an outstanding leader with a passion for our mission for the health and well-being of all North Carolinians."
CFO Matt Minor says Columbia County Health System is taking a unique approach to managing the healthcare labor crisis.
Rural healthcare providers face a unique set of financial challenges that make serving the small communities in which they operate more difficult than their larger counterparts.
Rural hospitals and health systems got a financial boost during the pandemic thanks to federal relief funds, but now that aid has dried up and these organizations are facing a fight to keep their doors open. Seven rural hospitals closed in 2022, according to data from the Kaiser Family Foundation, more than the previous year. Over 600 rural hospitals are in danger of closing this year, according to the Center for Healthcare and Quality Payment Reform.
Losses on patient services, low financial reserves, inadequate revenue to cover expenses, rising labor costs, and increasing inflation are all contributing factors to the financial challenges facing rural healthcare providers. But despite these obstacles, one rural hospital isn’t ready to throw in the towel and is implementing a unique set of strategies to help keep its doors open and serve the patients in its community.
Matt Minor, CFO for Columbia County Health System, a 25-bed hospital in Dayton Washington, recently connected with HealthLeaders to discuss how this small but mighty organization is staying true to its mission of superior patient care.
HealthLeaders: Tell me about Columbia County Health System.
Matt Minor: The health system is a hospital district in Columbia County, Washington. It's the, I believe, second least populated county in the state of Washington. We have a 25-bed critical access hospital. Through that, we have a significant rehab outpatient services department. We have a wound care department. We have a lab; we have an X-ray on site. We have an MRI trailer right there on campus that stays there all the time. So, there are a lot of great services for the community at the hospital. In addition to that, we have two rural health clinics. In the middle of February, we finally saw the fruition of about seven years of work getting an assisted living facility open. We've transitioned from skilled nursing in the skilled nursing facility to assisted living and the goal behind that was to provide a larger spectrum of care for the community. It’s a very, very small percentage of the population that ever needs skilled care and it's a larger population that needs assisted living. So, we wanted to make sure that we were positioned right for the community there. In addition, at one of our agencies, we have a dental clinic. So, we’re doing a lot of great work for an underserved population.
HL: What is the biggest financial challenge facing Columbia County Health System?
Minor: Labor. Even before the pandemic, it was the number one issue. That has always been the highest cost. Before the pandemic, it was a problem that was somewhat unique to rural providers because there is just a smaller percentage of the population that wants to live there. Our closest major city is 45 minutes away by car. The next one from that is an hour away. So, it takes a lot to get people to want to come and live in Dayton. Then after the pandemic, when you have a much smaller pool to work with, it becomes even more difficult. So that has absolutely been our single greatest financial hurdle over the last few years.
HL: How is Columbia County Health System combating the labor issue?
Minor: We know we can’t compete with the big systems monetarily. So, the strategy has to be what makes it better to work for us than for them. There are reasons to come work for us. We try to keep staffing ratios reasonable for the nurses so that they feel safe and able to care for their patients. We try to make it more of a community and more of a team so that they have their voices heard. We're not a faceless system that operates somewhere else and just has this hospital in Dayton, we are the community.
Another strategy we’re currently utilizing is to start an education department. We decided to do this because we spoke with our nurse supervisors last year, and one of the biggest things they said is that to feel safe, we need even the less experienced nurses to have the specialized skills needed to care for these patients, especially on the night shift or during weekends, when you don't have as many people on hand. And so, to that end, we've been looking for a nurse education coordinator.
Additionally, we’ve purchased a sim manikin, these things are amazing. They are able to fully simulate a patient, a patient who is crashing, a patient who has sepsis; a patient who has a whole lot of different life-threatening needs to deal with. It can simulate scenarios that our nurses see naturally maybe once or twice a year. We're very excited to get that off the ground because it's going to give them the muscle memory to feel confident when they go into these very stressful situations.
HL: What are some unique strengths that rural hospitals have that maybe their larger counterparts don’t?
Minor: Commitment to and support from the community is a huge one. We’re the largest employer in Columbia County, by a long shot. Additionally, we are a public hospital district. So, we have public board meetings every month. We’re actively engaged with reaching out to our community and I think they understand that this isn't about money, right? We're not a faceless corporation that's here to milk them for every healthcare dollar they're worth. They don't always see that but that's the general strength that we have. We can be very focused on what our patients and our community need and not necessarily on what looks best on paper. We do have to keep the doors open. And that’s cliche but it's something that we have to remind our clinical people of quite frequently. We want to do what's best for the patient, but what's best for the patient is keeping a hospital here.
HL: How is Columbia County Health System keeping the doors open?
Minor: It’s an evolving strategy. But one of the things that we embraced very early on was value-based care. We’ve been on an ACO for years, and we recently switched to a new ACO this year. Finding ways to reduce costs while increasing quality and positive outcomes for the patient is a passion of ours. Along with that comes recognizing that fee-for-service is not the future, and neither is cost-based reimbursement.
Value-based care is the future and disparate revenue streams are the future. So, looking to where we can find revenue streams that match specific community needs is important. Sometimes that means providing a service when there isn’t a clear revenue stream. For example, we have our transportation department, which has never made us a dime. We've never seen direct revenue from that transportation department, but what they do is they pick patients up and make sure that they make their appointments. And so, we get compliance. We get patients that see their doctors when they're supposed to, that are managing their chronic illnesses, and who don’t end up in the ER. So, it's about looking for those disparate revenue streams, but also thinking about the things that can contribute to those shared savings.
To receive a rating upgrade, Fitch wants to see evidence that Prime Healthcare Foundation has returned to an operating EBITDA margin of close to or better than 7%.
Fitch Ratings has affirmed its positive outlook on Prime Healthcare Foundation, an Ontario, California-based 501(c)(3) public charity healthcare provider with 45 hospitals in 14 states.
"The affirmation of the 'BBB' and maintenance of the Positive Outlook reflects PHF's very solid liquidity, despite market losses last year, moderate leverage, and Fitch's expectation that PFH's operating performance will recover in the 2023 fiscal year to a positive territory," Fitch wrote in its rating report. "The maintenance of the Positive Outlook is supported by management's report of the 1Q23 trend in both expenses and some volumes that are a contrast to the prior year, which ended with a negative operating EBITDA margin."
Fitch says an upgrade would require evidence that Prime Healthcare Foundation has returned to an operating EBITDA margin of close to or better than 7%, in addition to strong balance sheet ratios and liquidity levels.
"Historically, PHF's weak operating risk was based on the challenges of an unfavorable payor mix, dependence on supplemental payments, and the presence of several of its hospitals in competitive markets, and several of the individual hospitals with operating losses, further exacerbated by acquisitions of undercapitalized facilities," Fitch writes. "However, PHF had disposed two underperforming assets, and the strategy is now less focused on acquiring distressed hospitals, but rather directed at strengthening the system fundamentals through vertical integration of existing assets, supported by investment directed at ambulatory presence."
There has been a 258% increase in total contract labor expenses for hospitals in 2022 compared to 2019.
New data from the American Hospital Association has found that hospitals and health systems are dealing with an increase in financial pressures that are now putting patients’ access to care at risk.
The AHA found that expenses across all healthcare departments saw double-digit increases in 2022 when compared to pre-pandemic levels. These expenses include workforce, drugs, medical supplies, and equipment, as well as other essential operational services like IT, sanitation, facilities management, and food and nutrition services. These issues resulted in 2022 being the most financially challenging year for hospitals and health systems since COVID-19 first hit the U.S.
The report found that overall hospital expenses increased by 17.5% between 2019 and 2022, outpacing Medicare reimbursement, which only grew by 7.5% during the same period. Labor costs, which typically account for half of a hospital’s budget, grew by 20.8% between 2019 and 2022. The growth in labor expenses was primarily the result of a rise in reliance on contract staffing. There has been a 258% increase in total contract labor expenses for hospitals in 2022 compared to 2019, according to AHA research.
Drug prices exploded during this time, with the median price of a new drug exceeding $200,000 for the first time ever, more than triple the median household income in the U.S. Price increases for drugs that already exist have continued to outpace inflation, according to the AHA report. This resulted in a 19.7% increase in drug expenses per patient between 2019 and 2022. Additionally, hospital supply expenses per patient increased by 18.5% between 2019 and 2022, this outpaced any rise in inflation by about 30%.
"Rising costs for drugs, supplies, and labor coupled with sicker patients, longer hospital stays, and government reimbursement rates that do not come close to covering the costs of caring for patients have created a dire situation for hospitals and health systems," AHA President and CEO Rick Pollack, said in the report. "This is not just a financial problem; it is an access problem. When healthcare providers cannot afford the tools and teams they need to care for patients, they will be forced to make hard choices and the people who will be impacted the most are patients. We can’t let that happen. Congress and others must act to preserve the care our nation needs and depend on."
Marty Wynn has over two decades of healthcare industry experience.
Marty Wynn has over 25 years of experience in the healthcare industry and is stepping in to manage Piedmont Eastside Medical Center’s financial performance, as well as perform detailed analysis on hospital service lines and manage the organization’s budgeting process.
"We are pleased to welcome Marty to Piedmont Eastside. He is an excellent addition to this hospital’s leadership team," Eastside’s chief executive officer, Larry Ebert said in a release announcing Wynn’s appointment. "His extensive knowledge of finance and his experience in the industry will serve our team very well. As a nonprofit system, we are very careful stewards of the resources entrusted to us as we provide care for the community and Marty will play a crucial role in that process."
Wynn will continue to serve as CFO of Piedmont Walton Hospital, a position he’s held for the past three years.
Separately, Piedmont Newton Hospital, a Covington, Georgia-based hospital, recently announced it has been expanding its presence in the community it serves. Piedmont Newton Hospital has Opened a 30,000-square-foot medical office complex in Eastside Crossing Shopping Center, received another grant to provide car seats to Newton County families in need, and planned an annual fundraising concert to support the Neonatal Intensive Care Unit.
"Each of these developments supports our goal of making a positive difference in every life we touch at Piedmont Newton," Norris Little, M.D., interim chief executive officer, said in a release. "They reflect our continued commitment to expanding access to care and services right here in Newton County."
