One, two, three punch….TKO? Hospital Finances Reported
I’m not often caught off guard or knock down by the reporting of financial outcomes for an organization. However, in the past couple of weeks, I’m not sure if I’m laying on the mat, whether a TKO has happened, or when I’m going to get up… All based on the release of some information regarding healthcare.
In rapid succession, three major healthcare systems announced their first quarter operating numbers for 2022. First to come out was CommonSpirit, a 140+ hospital system across the United States. It announced a loss of just short of $600 million in the first quarter of 2022. After that announcement, within a couple of days, Advocate Aurora, a healthcare system in Illinois and Wisconsin, announced a quarter of $1 billion loss in the first quarter of 2022. And then shortly thereafter, Providence Healthcare, the hospital system on the West Coast, announced a $500 million loss in the first quarter of 2022. And while I have seen industrywide updates from the great work at Kaufman Hall about operating margins through the first quarter, these three individual numbers staggered me.
Inside the numbers, there were two major factors to be noted. One of which actually is NOT revenue from services provided. While two of the three announced a small decrease in revenue over a year ago, it wasn’t significant. What was were labor costs, particularly with nursing. It was specifically listed as the biggest issue that these healthcare systems are dealing with. There was also investment losses that show up on the balance sheet, based on the stock market and decreasing market values. But the mover is labor costs. In one case the cost of labor alone, year over year, was at more than 10%. And when more than 70% of your overall cost is labor, that’s a significant issue.
This is not sustainable. While the systems are enormous, the basic principle of finances is that if you lose more money than you take in, eventually you can’t continue doing business. It doesn’t make a difference how big you are. And, with me not even being even close to the smartest guy in the room, I don’t know how this gets fixed. I do know that the American Hospital Association and others have signaled to the federal government, for Medicaid and Medicare, and to insurance companies, for commercial pay, that reimbursement rates must go up otherwise there will be cataclysmic service interruptions as financial decisions will have to be made.
This is something to pay attention to. Another quarter like this, losing $1 billion in six months is not just problematic, it’s earth shattering. It means hospitals and systems making decisions that they won’t provide certain services in certain areas of your local community. It means going further distances for basic healthcare. It means rationing of certain kinds of healthcare. All of those are not good for the general public, the people you love the most, or you as an individual. Or for me as well.
