'Unsustainable' losses are forcing hospitals to make 'heart-wrenching' cuts and closures, leaders warn

By Dave Muoio / September 16, 2022

Billions in losses and negative operating margins expected to be commonplace through year-end have hospitals warning of service closures and potentially systemic collapse without immediate outside support.

Anywhere from 53% to 68% of the nation’s hospitals will end 2022 with their operations in the red versus the 34% reported in 2019, according to new industry projections released Thursday by Kaufman Hall on behalf of the American Hospital Association (AHA).

The group’s “optimistic” projections place 2022’s hospital margins 37% lower than what it recorded in 2019. Its “pessimistic” prediction sees that margin decline plummet to 133%.

“In either case, hospitals stand to lose billions of dollars in 2022,” Lisa Goldstein, senior vice president at Kaufman Hall, said Thursday during an AHA press call discussing the report. “It will be the worst year since the start of the pandemic.”

Much of the damage comes from expenses anticipated to continue rising through the end of the year to nearly $135 million more than 2021, according to the report.

About $86 billion of that expected increase is tied to labor, which traditionally encompasses about half of a hospital’s total expenses, Kaufman Hall wrote. Contract labor that normally constitutes about 10% of a hospital’s salary and wages budget was responsible for a third of the increase, Goldstein said. Contract labor remains in elevated demand as hospitals across the country contend with a workforce shortage.

'We're hurting—in fact, we are bleeding red'

 Nonprofit health system executives participating in the AHA’s call said the projections translate into grim consequences for hospitals and patients forced to travel further, wait or even forego necessary care.

“The numbers are all going in the wrong direction, and I’m concerned we’re going to see more healthcare providers close as a result of the current financial reality, which will impact access to care,” said Jack Lynch, president and CEO of Main Line Health, a five-hospital nonprofit system serving Philadelphia and its western suburbs. “In my 35 years as a healthcare leader, this is the most fragile I’ve ever seen the American healthcare system.”

Main Line Health has seen its total expense per admission (adjusted for case mix index) increase by 26%, far outpacing the 14% increase in revenue per admission (adjusted for case mix index), Lynch said. The system had budgeted a $6 million loss for its fiscal year but lost $20 million in July alone, he said.

“These losses are unsustainable and will impact our ability to meet expectations and healthcare needs of those in the community,” he said.

The situation is similarly dire at Ouachita County Medical Center, an independent, 80-bed rural medical center in Camden, Arkansas.

Peggy Abbott, its CEO, said the hospital’s year-to-date revenue is down 4% while its salaries and overall expenses increased 9% and 12%, respectively. The hospital is “truly operating on a week-by-week cash basis” and has had to resort to voluntary pay cuts and reduced hours to keep functioning, she said.  

“It doesn’t take a mathematician to know that we're hurting—in fact, we are bleeding red,” she said, adding that many of the nation’s rural independent hospitals are operating in a similar state.

Larger nonprofit health systems are no exception to the pressure.

Mike Slubowski, president and CEO of 88-hospital Trinity Health, said his organization has nearly 3,900 vacant registered nurse positions as well as a 14% clinical support staff vacancy rate.

The staff shortages “are like nothing we’ve ever seen before,” he said, and have forced Trinity to take 12% of its beds, 5% of its operating rooms and 13% of its emergency departments offline.

“We have some locations with as high as 20% to 25% of their beds offline, and half of their operating rooms and diagnostic services offline due to nurse staffing shortages,” he said. “We’re doing all we can including innovating how we deliver patient care, but it isn’t enough. Hospitals, long-term care facilities, home care and physician practices lack the resources needed to solve the healthcare workforce crisis ourselves.”

The shortages and losses are forcing many providers to pick and choose which services and locations they can still afford to run.

Abbott said Oauchita County Medical Center recently made the “heart-wrenching decision” to close a rural clinic in a “poverty-stricken” community 20 miles from the main hospital. The clinic had operated for 25 years at a consistent loss that the rural hospital could “no longer justify” covering, she said.

She also told the story of another rural hospital 40 minutes away that warned her team it would need to shut down its obstetrics services for a few weeks as it plugged staffing shortages in the department. Those weeks turned into a permanent closure, forcing her hospital and another facility to be the only receiving centers for a 75-mile radius.

“Those women, those obstetrical patients who need that coverage, they look to us for that coverage now more than ever,” she said. “What if we cannot obtain the appropriate number of staff? What happens to those mothers when at the time of delivery they’re confronted with maybe a three-hour drive to the nearest [obstetrics] hospital, or what is the impact to an emergency room that’s confronted with managing a delivery … in a hospital that doesn’t have nursery and doesn’t have an obstetrical unit?”

Lynch said Main Life Health has also recently become the destination for obstetrics patients and others whose previous facility was forced to close.

“We’ve seen an 8.4% increase in births, and we expect that number to continue to rise because of the closure of a [obstetrics] program at another hospital in our market that had over 1,000 deliveries,” he said. “Emergency room visits continue to increase with a 15% increase over last year, [and] this has also been impacted by the closure of two hospitals in our market last November and December along with the closure of at least one other emergency room in our market.”

Meeting the increased demand from nearby closures would require “significant capital expenditures” on additional beds, facilities and staff, he said. And with 1,500 job openings, 400 of which are nurses, his organization has had no choice but to go with pricey travel agency staff.

“We can’t change our operating hours like most other consumer products. If we close beds or services, we risk people getting hurt, getting sicker or even dying,” Lynch said. “Anything we do other than hiring adequate staff can limit patients’ access to emergency care or elective procedures.”

Hospitals call for lawmaker support, increased pressure on payers
 

AHA President and CEO Pollack pointed to these testimonies and Kaufman Hall’s projections as evidence of much-needed congressional intervention.

Pollack reiterated his group’s calls for lawmakers to extend two key payment programs for rural providers that are set to expire at the end of September and make certain pandemic-era regulatory waivers permanent to enable innovative care models, such as telehealth and hospital at-home programs.

More broadly, he called for lawmakers to “hold commercial insurance companies accountable for their behaviors, which puts further strain on hospitals and also exacerbate workforce pressures as caregivers are forced to deal with bureaucratic obstacles.” Those behaviors include payers’ prior authorization policies, “arbitrary” denials of payment and barriers to discharging patients to other care settings, among others.

The three hospital CEOs participating in the call also highlighted payers’ tight purse strings during upcoming contract negotiations.

In contrast with recent comments made to investors by major for-profit systems during earnings season, Slubowski said his large system is seeing just 2% to 3% rate increases while many others remain locked in and cannot be adjusted.

Abbott said she believes her independent hospital’s plight has “capture[d] the attention of a couple of our major insurance providers, but they too are very guarded, protecting their bottom line and [being] relatively insensitive to our bottom line.”

Lynch said his system has seen payers opening discussions with “the same language we heard from the contracts that we were negotiating pre-COVID. I don’t think there’s been any recognition by the payers of the cost increases healthcare has experienced. … When we talk to the payers now, one commented, 'If we give you an increase, we’re going to have to give everybody else an increase.’”

As an alternative, Slubowski noted that Trinity has been successfully managing care costs and outcomes in limited projects and would be “very open” to taking on risk contracting from commercial payers. However, so far “there is an unwillingness on the part of commercial payers to provide risk and reward to providers,” he said.