Workforce Cuts Run Rampant as CFOs Look to Save

Inflationary pressures and high labor expenses are leading to major layoffs from some large healthcare systems.

Hospitals and health systems of all sizes are really feeling the squeeze from labor costs, leading some CFOs to look toward workforce cuts for relief.

CommonSpirit Health recently reported a $1.4 billion operating loss and a $259 million net loss for its 2023 fiscal year. The reason, it says, is because rebounding patient volumes were not sufficient to offset rising expenses due to labor costs and unfavorable reimbursement rates from payers.

At the same time, the health system disclosed it had laid off approximately 2,000 full-time positions during the fourth quarter.

The layoffs were also cited as part of the health system’s move toward operational efficiency, according to earnings documents. This is the second set of layoffs for the system this year.

“Like the rest of the healthcare industry, CommonSpirit continues to be affected by inflation, the continued labor shortage, and challenging dynamics with payers,” CommonSpirit CFO Dan Morissette said in a release.

“Given those headwinds, we continue to focus on initiatives and opportunities that allow us to pursue growth, reduce costs and increase efficiency, while at the same time investing appropriately in developing the workforce of the future,” Morissette said.

Layoffs were also recently announced by Novant Health.

According to Novant Health’s statement, it plans to reduce its workforce by 160 employees as the company redesigns its organizational structure.

This announcement isn’t too surprising as Novant Health recently reported a 7.3% year over year increase in labor costs during its three-month earnings ending on March 31.

Interestingly, Kaiser Permanente announced several dozen layoffs in multiple California cities, according to documents recently filed with the state. Kaiser’s cuts include 28 jobs in the East Bay and 21 in Southern California locations. They are scheduled to take effect on or around Nov. 10.

These layoffs from Kaiser Permanente come in the midst of ongoing contract negotiations and strikes from its employees.

Smaller hospitals are facing the same financial hurdles and layoffs as well.

For example, Ozarks Healthcare in Missouri is planning to reduce its workforce by 130 full-time equivalent positions due to inflationary pressures, according to its press release.

"Our mission has always been and will remain to provide exceptional and compassionate care to all we serve and we are deeply committed to that mission," Tom Keller, Ozarks Healthcare president and CEO, said in the release. "This means we must take the difficult steps and measures to meet these challenging times so we can ensure our financial stability."

What does this mean for 2024 financial planning?

Unfortunately, CFOs are unlikely to see any relief from labor expenses—and this will be coupled with an impending “labordemic.” Hospital and health system CFOs face the challenging task of curbing labor expenses while also dealing with labor shortages. Balancing these two objectives will be crucial as CFOs look toward 2024.