CHI St. Vincent’s four hospitals in Arkansas are expecting a $75 million loss for the fiscal year that ends June 30, as hospitals face a wave of financial problems, from increased labor costs to higher prices for supplies.
“We want to make sure that our government officials understand the state of the health care industry is not healthy,” Chad Aduddell, the CEO of the CHI St. Vincent system, recently told Arkansas Business. “And we’re not recovering financially.”
CHI St. Vincent isn’t alone. Other hospitals are struggling in Arkansas and across the country.
“I’m hearing it from every member across the state,” said Bo Ryall, president and CEO of the Arkansas Hospital Association. “They say that the first quarter of 2022 is the worst quarter for hospital finances that anybody’s seen in their career.”
He said that neither government nor commercial health insurance reimbursements for services are keeping up with soaring inflation costs. And while the state and federal relief money that hospitals received earlier in the pandemic was helpful, there’s been no aid to offset the delta or omicron surges.
“So every hospital is feeling the pinch right now and projecting even worse moving forward for the whole year,” he said.
Ryall said he hasn’t heard of any talks at the state or federal level about more relief money for hospitals. “A lot of the thinking is that COVID’s over and we’re moving on,” he said. “But hospitals have incurred significant expenses through the delta and omnicon surge, and we’re just going to need some help.”
Without an influx of money, hospitals won’t be able to “sustain the levels of care that we’re seeing now,” he said.
Across the country, hospitals and health systems saw negative operating margins in March, the third consecutive month that was the case, according to Kaufman Hall of Chicago, which advises health care and higher education organizations and collects data from more than 900 U.S. hospitals.
“Many organizations in the first quarter here have lost a fair amount of money,” Erik Swanson, a senior vice president leading Kaufman Hall’s data and analytics group, told Arkansas Business during a Zoom meeting last week.
While the March numbers were improved from February’s, the numbers “suggest a long road ahead” as health care providers struggle with inflation, national labor shortages and the ongoing impacts from COVID-19, two years after the start of the pandemic, according to Kaufman Hall’s April report.
“It’s going to be a very challenging year,” Swanson said. “We expect that cumulative margins here will likely remain well below pre-pandemic levels probably throughout the remainder of this year.”
Aduddell said he fears that without another round of relief money, health care facilities are at risk of closing or reducing services.
“We have very few COVID patients in hospitals around the state,” he said. “And yet the impact of COVID, the impact of inflation on the health industry is pretty severe.”
Ryall said last week that he isn’t aware of any hospital mergers and “certainly no closures.”
Soaring Costs
CHI’s expenses are up nearly $120 million this year compared with its fiscal year that ended June 30, 2020 — and it’s taking care of fewer patients, Aduddell said.
During the pandemic, hospitals saw labor costs rise as they hired contract nurses to replace the health care employees who left the industry or jumped to travel nurse jobs, which in some cases paid several thousand dollars a week.
Even though costs for contract nurses should begin to decrease as the number of COVID patients decline, their expense is expected to remain well above pre-pandemic levels.
And labor costs are expected to remain high because of the shortage of nurses, Aduddell said. “We’re no longer competing locally for nurses and support staff,” he said. “We’re now competing on a national and global level for nursing talent.”
Aduddell said that hospital support staff positions also are difficult to fill because hospitals are competing with other industries for the same workers.
Kaufman Hall’s Swanson said that in general there are fewer patients coming to hospitals, but those who are are staying longer and are sicker. “The resources required to care for them actually are more expensive,” he said.
St. Vincent will be working on improving its efficiencies by focusing on a patient’s length of stay in the hospital. When patients are ready to be discharged or transferred to another facility, St. Vincent will make sure that’s not done too soon or later than necessary.
“We don’t have any margin in the system for people to stay too long. We don’t have enough nurses and support staff for patients to stay too long,” he said. “And, candidly, the government and the payers don’t pay for that.
“That allows for the next patient to be able to transfer in that needs to or the patient that’s in the ER to be able to get a bed,” he said.
Revenue Increases
Unlike other businesses, hospitals can’t raise prices to keep up with inflation. Governments set Medicaid and Medicare rates, and commercial insurance contract rates could be in place for years.
About 70% of St. Vincent’s revenue comes from the government as a payer through programs such as Medicare or Medicaid. And the government’s payments aren’t keeping up.
“With real inflation up over 8% and supplies for us up closer to 13%, increase in wages close to a 17% increase, … the increase from Medicare to address that in 2022 is 2.5%,” Aduddell said. “And the increase that’s on the books for 2023 is only 3.2%.”
He said that St. Vincent has started having talks with “multiple payers” in Arkansas about increasing their reimbursement rates for services.
Aduddell said the talks include sharing the hospital’s financial situation and discussing the payers’ role in helping St. Vincent provide services for patients and insurance company members.
He realizes that increases in reimbursements to health care systems could result in higher premiums. “Nobody wants to hear that,” Aduddell said. But “if everybody wants to continue to have great access to services, ... the revenue to pay for that has to come from somewhere, and … it’s going to be insufficient what’s coming from the government.”
Insurance companies offering individual and small group health insurance plans are required to file proposed rates with the Arkansas Insurance Department for review and approval before plans can be sold to consumers. The rate changes should be available and published on the AID’s website on July 2, according to an AID spokesperson.
