Omicron and UAMS’ Financial Prognosis

Amanda George is the chief financial officer for the University of Arkansas for Medical Sciences.

The University of Arkansas for Medical Sciences in Little Rock is unsure how the fast-moving omicron variant will affect its financial health for its current fiscal year.

Omicron marks the third COVID surge for UAMS, which includes the state’s only teaching hospital. “We’ve managed to come out OK through each one,” Amanda George, vice chancellor for finance and chief financial officer of UAMS, told Arkansas Business in a recent Zoom interview. “It’s really probably too early to make a lot of predictions on what this one will do.”

George said UAMS remains on track to have a balanced budget by the end of its fiscal year on June 30. But that depends on how the latest variant plays out.

On Monday, the Arkansas Department of Health reported 96,379 active COVID cases in the state and 1,385 hospitalizations.

For the fiscal year that ended last June 30, UAMS reported a surplus of $61.5 million, compared with a loss of $15.7 million for the previous fiscal year.

Government stimulus money played a key role in keeping UAMS out of the red. In the last fiscal year, UAMS received $46.4 million from the federal Coronavirus Aid, Relief & Economic Security Act, according to UAMS’ audit, done by KPMG LLP of Dallas. And since COVID first surfaced in Arkansas in March 2020, UAMS has received about $90 million in CARES Act funding. The money “was critical for us to continue to be able to survive financially during this pandemic,” George said.

During the current fiscal year, UAMS has received $9.7 million from the Provider Relief Fund. The U.S. Department of Health & Human Services, through the Health Resources & Services Administration, distributed billions in Provider Relief Fund payments to health care providers that have had revenue losses and higher expenses because of the COVID-19 pandemic. UAMS said the PRF money could be used to cover expenses stemming from COVID and lost revenue.

In the meantime, UAMS has several multimillion-dollar projects that are in the works or have been recently completed to serve patients and boost revenue.

Pandemic Pushes Up Expenses

UAMS’ expenses have climbed during COVID. For its fiscal year that ended midyear 2021, its operating expenses increased 8.71% to $1.85 billion.

Money spent on medical supplies and other services, such as personal protective equipment and enhanced sanitation measures, increased by nearly 12% to $594 million in the fiscal year that ended June 30.

But its largest expense was salaries. UAMS paid $1.19 billion in compensation and benefits for the fiscal year ended June 30, a rise of nearly 8% from its year that ended in June 2020.

“We continue to see the increased level of expense associated with contract labor and overtime and some of those personnel costs,” George said.

“If we can figure out a way to reduce contract labor, that would be our best bet of curbing some of that expense,” she said. But trying to find a solution to the labor costs is “a challenge because there’s just a lot of moving parts right now.”

The travel nurse companies tell UAMS what price the contract nurses are seeking and what the other hospitals are paying. “So it doesn’t feel like we have a whole lot of options there,” George said.

UAMS also has a committee that reviews vacancies to see if a position needs to be filled after an employee leaves. “Or is it a position that we feel is critical that needs to be filled now,” George said. “So that process is in place, but it’s not a formal freeze.”

Other hospitals and health systems also have felt the financial pressures of rising expenses and nationwide labor shortages, according to a Jan. 4 news release from the management consulting firm Kaufman Hall of Chicago.

“Hospitals are grappling with higher labor costs despite lower staffing levels, due to intense competition for qualified healthcare workers,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in the news release. “In addition, the highly contagious Omicron variant could put more pressure on hospitals in months to come.”

Depending on the impact of omicron, UAMS might reduce discretionary spending, George said. “We haven’t put too many guardrails around discretionary spending,” she said. “It’s something that we’re talking about.”

$150M in Projects

Meanwhile, UAMS has more than $150 million worth of construction projects underway: An $85 million Orthopaedic & Spine Hospital, which started construction in April, is scheduled to be completed in March 2023. And a $65 million radiation oncology center relocation and expansion project, which started in May, is expected to be finished in June 2023. (See Medical Projects Feed Construction Pipeline.)

Two other major construction projects are scheduled to start this year. In March, UAMS will start building a $35 million parking deck. The deck, featuring 800 parking spaces and five levels, will be off of South Pine Street between West Capitol Avenue and West Sixth Street in Little Rock. The architect on the project is Walter P. Moore of Houston. A contractor has not been named.

Another project is an $85 million Northwest Orthopaedics & Sports Medicine Facility in Springdale. The building, near the Arvest Ballpark and Arkansas Children’s Northwest, will be about 185,000 SF and feature eight operating rooms. Specialty clinics will include sports performance, physical therapy, orthopedics and imaging. Construction is expected to begin in August and finish in March 2024. Architects are Marlon Blackwell Architects of Fayetteville and Davis Stokes Collaborative Architects of Brentwood, Tennessee. The contractor is Nabholz Construction of Conway. (See Calling Hogs, and Others Needing Orthopedic Care.)

A recently completed construction project should help UAMS save money on its energy bill. In October, UAMS completed a $50 million electrical power plant at its Little Rock campus. The plant is a key part of a $150 million energy project that is projected to be completed later this year and result in an estimated $4.8 million in annual savings.

‘Meds to Beds’

UAMS reported operating revenue increased 12.6% to $1.78 billion in its fiscal year that ended June 30.

Its line item for “other” operating revenues rose by $29.7 million, up 23%, compared with the previous year’s number. UAMS attributed the revenue growth mainly to its pharmacy business.

“One of the programs that we started is called Meds to Beds,” George said. Under the program, a pharmacist or a pharmacy tech visits a patient before the patient’s discharge. And if that patient needs prescriptions to be filled, “we fill it before they’re discharged so that we can capture that,” she said.

It also helps the patient because they don’t have to worry about having their prescription filled after leaving the hospital.

Patients Returning

For the current fiscal year, UAMS projected that net patient service revenue will be $1.36 billion, an improvement on the $1.34 billion for the fiscal year that ended June 30.

“We budgeted to be back on track to what we were prior to COVID,” George said. More than halfway through the current fiscal year, “we’re running a little bit behind on net patient service, [but] only by about 1%.”

For the fiscal year that ended June 30, 2019 — before COVID upended the world — UAMS’ net patient service revenue was $1.3 billion.

UAMS is also projected to receive $77.7 million in net state appropriations this fiscal year, an increase of about $22 million from its fiscal year that ended midyear 2021. The increase is tied to helping UAMS’ cancer center earn an official cancer center designation from the National Cancer Institute at the National Institutes of Health. UAMS has been working for a few years toward NCI designation, which would help make important cancer treatments available in the state so patients won’t have to leave Arkansas. The designation is also expected to draw patients to Little Rock for care, along with physicians, scientists and researchers looking to assist in research and trials. The designation also provides access to federal research money.

There are 71 NCI-designated cancer centers in 36 states, with the closest to Arkansas in Memphis, Dallas and Oklahoma City.

The unknowns tied to the pandemic make it difficult to budget for UAMS. And in the meantime, George said, she will be watching how omicron plays out. “What we hope will happen is that it’s a quick surge up, quick surge down and won’t be as long-lasting as the delta wave was,” George said. “But we’re playing it day-by-day right now.”