Rising expenses are still wreaking havoc on hospitals and health systems.
Hospitals and health systems have been struggling financially as they try to navigate the COVID-19 crisis, inflation, labor shortages, and rising expenses. This confluence of challenges means these organizations are going to finish out the year in the red, according to the latest National Hospital and Physician Flash reports from Kaufman Hall.
Hospitals and health systems saw negative margins for the ninth consecutive month, according to the Kaufman Hall research. The median year-to-date operating margin index for hospitals was -0.1% in September.
"Health systems are starting to get a clear picture of what service lines have a positive effect on their margins and which ones are weighing them down," Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall, said in an email statement. "Without a positive margin, there is no mission. Health systems must think carefully and strategically about what areas of care they invest in for the future."
Organizations also saw revenues decline for the third quarter as the adjusted patient days and emergency department visits both dropped 3% from August. Operating room minutes decreased 5% from September, which also hurt hospital revenues.
There was a rise in physician practice volumes for the third quarter, however, rising expenses are still taking a toll on organizations. Hospital total expenses dropped slightly in September, down 1% from August, but are up 3% from September 2021.
"Heading into the final quarter of the year, hospitals and physician practices have had little reprieve during a very difficult 2022 from a financial perspective," Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, said in the email statement. "Hospitals and physician practices could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up."
Kim Shrewsbury, former CFO for Ascension Florida, will lead the organization’s financial efforts.
Atrium Health Navicent—a Macon, Georgia-based 637-bed hospital with around $2 billion in total revenue—has announced that Kim Shrewsbury, a healthcare finance industry veteran with over two decades of experience, has been appointed its new chief financial officer.
Shrewsbury has previously served as CFO for Ascension Florida and Gulf Coast Ministries in Pensacola, Florida; Augusta University Health System in Augusta, Georgia; Decatur General Hospital in Decatur, Alabama; St. Vincent’s East in Birmingham, Alabama; and Cullman Regional Medical Center in Cullman, Alabama.
She will oversee all of Atrium Health Navicent’s financial functions and overall strategic and financial direction, as well as financial monitoring and oversight of budget preparation.
"Kim Shrewsbury’s prior financial leadership experience makes her a great addition to Atrium Health Navicent in our continued drive for excellence," Atrium Health Navicent President and CEO Delvecchio Finley said in an email release. "We welcome her to Macon and to the Atrium Health Navicent team."
"Unfortunately, we have not achieved the vision and goals that were established when we made the decision to bring Morris Hospital services to Yorkville," Tom Dohm, President and CEO of Morris Hospital and Healthcare Centers, said.
Morris Hospital & Healthcare Centers—a Morris, Illinois-based healthcare provider with 28 locations and over $780 million in total patient revenue—has announced plans to close its Yorkville Campus effective December 3, 2022.
The closure is the result of the organization’s inability to successfully bring its healthcare mission to the Yorkville community and low patient volume.
"Unfortunately, we have not achieved the vision and goals that were established when we made the decision to bring Morris Hospital services to Yorkville," Tom Dohm, President and CEO of Morris Hospital and Healthcare Centers, said in a statement announcing the closure. "While closing a healthcare facility is never an easy decision, after more than eight years, it is no longer feasible to sustain our Yorkville offering."
Morris Hospital opened its Yorkville Campus in 2014 in an 11,888-square-foot building, where it offered diagnostic imaging, lab, physical therapy, and physician specialists. Currently, the facility is offering occupational medicine, primary care, and walk-in care. The 10 staff members employed at the Yorkville Campus have been offered the opportunity to relocate to other Morris Hospital locations.
Between now and the time the facility closes, Dohm says the focus will be on assisting patients and occupational medicine clients in transitioning their care to other Morris Hospital locations. For occupational medicine and convenient care services, patients will be directed to Morris Hospital’s Diagnostic & Rehabilitative Center in Morris, Ridge Road Campus in Channahon, and Diamond-Coal City Campus. Primary care patients will be receiving a letter that provides options for continuing their care with Morris Hospital.
Uncertainty is going to be the challenge plaguing hospitals for the foreseeable future. What hospitals can do about it is key.
At the start of his career, Doug Watson, chief financial officer for UnityPoint Health, was working as an auditor, auditing banks, oil and gas companies, and other similar organizations. But when he audited a few small hospitals, he realized he had a calling in a career in healthcare finance.
"I started working with some hospital clients and felt like it mattered," Watson says. "The difference in helping a hospital manage their finances better or identify issues earlier has a real impact on people. We could help save a life."
Watson became CFO for UnityPoint Health—a Des Moines, Iowa–based health system with about $5 billion in net patient revenue—in August 2021 and has helped to lead the organization through some of the toughest financial issues facing the organization resulting from the pandemic, inflation, and the labor shortage.
Watson recently sat down with HealthLeaders to discuss economic and environmental uncertainty, and how hospitals can take action.
HealthLeaders: What is keeping hospital and health system CFOs up at night?
Doug Watson: Uncertainty. In finance, we like to have a solid baseline with which to project things, do a new budget, or evaluate financial performance. Since March 2020, we haven't had any solid baselines in healthcare. You have to go back to 2019 for a solid reference point so we can compare what's happening today back to something we view as normal. And that's been a challenge because normal is getting out of date. 2019 was quite a long time ago.
There's uncertainty about what's going to happen with the economy next year. Experts are predicting a 100% certainty of a recession, but how significant it will be is unknown. There's a lot of uncertainty about how inflation is going to manifest itself over the next 12–18 to 24 months.
Another key assumption to what you're doing is the labor market uncertainty. We've never seen a labor environment like this. We've had shortages that were emerging prior to the pandemic, but so many caregivers have left the industry during the past year. It's striking the number of doctors who have just left active practice and then you couple that with the unpredictability of demand on any given day.
We're [also] having waves of COVID, and now there is RSV [respiratory syncytial virus] hitting the pediatric side in a huge way, and we're going to have flu coming up. Historically, we have had one flu season that was a little unpredictable, but you had a lot more predictability as to when you thought you'd be super busy and when things can be quiet. Now that is no longer the case because we get surges.
Then you throw the political and the geo uncertainties around the supply chain and how the Ukraine war is going to affect the longer term. There are no answers that add a level of uncertainty to any kind of prediction or forecast that we might be trying to make.
HL: What kind of impact might the mid-term election have on healthcare finance?
Watson: It certainly has the potential to have a significant impact. There are a lot of things that are in play regarding the end of the emergency declaration around the pandemic. A lot of the waivers, some of the home hospitalization waivers, some of the payment modifiers, etc., are all tied to that. So, the timing and the makeup of Congress will determine if those waivers move into permanency, or if there will be extended time provided beyond the official end of the emergency declaration, whenever that may be.
The other factor is the economic situation, and that can tie in with the political backdrop. But as we see the economic environment get more difficult potentially, we must determine what that means in terms of enrollment in public programs and the funding for those public programs—which is a combination of state and federal [decisions]. Those things are significant and could change depending on how [the election goes].
HL: How can healthcare organizations prepare for the challenges we've discussed?
Watson: We're doing a lot more scenario analysis. It's about thinking ahead and asking, "Well, what if X occurs?" But it is more than just running the numbers. It's about identifying the steps to take, getting operations and strategy involved, and having conversations about if something happens, and what can we do about it. We don't want to be reactionary if something happens, we want to have actions put in place ahead of time.
We've been doing a lot of scenario planning work around government programs. One example where there have been substantial changes is in the 340B environment. That is a good example of us saying, "As we go forward, what would we do in different scenarios, depending on how that might change?"
HL: What challenges are on the horizon for hospitals and health systems in 2023?
Watson: It will vary a lot depending on how some of this uncertainty is impacting individual organizations. The financial headwinds that the industry is facing are significant, and that's affecting organizations differently. I think it opens both risk and opportunity going into next year. There are opportunities to have a dialogue with organizations that perhaps wouldn't be talking historically. There are opportunities to think about how we can deliver care in different ways. In an era of uncertainty, in an era where the environment is challenging, people can come up with creative solutions that perhaps they wouldn't do in a normal environment.
CFO/COO Brandon Anzaldua is leading the hospital as the organization searches for a new CEO.
Gonzales Healthcare Systems—a Gonzales, Texas-based healthcare provider with over $26 million in total revenue—has promoted Chief Financial Officer Brandon Anzaldua to the role of Chief Operating Officer.
Anzaldua joined Gonzales Healthcare Systems in December 2019 as CFO, he will continue to serve in that role as he takes on new duties as chief operating officer. In addition to overseeing the organization’s financial well-being and accounting, Anzaldua also oversees the housekeeping department, dietary department, IT, and radiology department at Gonzales Healthcare Systems.
"Gonzales Healthcare Systems takes pride in all of their staff members and the care they provide daily to our community members," The system said in a release. "We are lucky indeed to have Mr. Anzaldua as part of the leadership team to help guide our facility and staff into the future."
Separately, Gonzales Healthcare Systems CEO Michael La Coste has left the position after only four months of leading the organization, according to a report by The Gonzales Inquirer.
"There was a mutual decision made last night (Tuesday, Nov. 1) at the board meeting, by the Board of Directors and CEO Michael La Coste, that Mr. La Coste will no longer serve as GHS CEO, effective immediately," GHS director of advertising and public relations Holly Danz told the Inquirer. "CFO/COO Brandon Anzaldua will be leading our organization for the time being. We won’t be commenting any further regarding this personnel matter."
JLL's 2022 Healthcare and Medical Office Perspective Report lists seven ways health systems can use real estate to increase revenue and cut costs.
Health systems' margins are under extreme pressure, thanks to ongoing labor challenges, supply chain issues, rising capital costs, and strained payer relationships. All these issues have forced healthcare leaders to get creative in the way they cut costs—one such solution revolves around their real estate strategies.
Real estate can account for about 40% of a healthcare system’s balance sheet, according to data from JLL’s 2022 Healthcare and Medical Office Perspective Report. Margin relief has become a fundamental part of health systems’ efforts to improve the financial well-being of their organizations. By leveraging real estate assets, systems can use the cost savings to take the pressure off margins, according to the JLL report.
The report lists seven ways health systems can use real estate to increase revenue and cut costs.
Managing the real estate portfolio with appropriate technology and data to generate timely, actionable improvement insights
Aligning locations to mission and business objectives
Expanding, relocating, and/or reprogramming sites to maximize patient access (market share) and patient volumes (revenue)
Blending and extending leases to reduce rent or square footage in exchange for longer terms
Bundling leases where there are multiple locations and significant square footage with a single landlord
Reexamining administrative workplaces and adjusting to the new work-from-home paradigm
"Reverse monetization" of assets with significant hospital occupancy
"Health systems and other care providers continue to face economic challenges in the aftermath of the pandemic, including labor shortages, payor and reimbursement pressures, and disruption from innovation and new entrants into the sector," Jay Johnson, National Practice Leader, Healthcare Markets, JLL, said in the report. "Facilities offer both risks and opportunities to healthcare providers, and, despite the challenges, the critical nature of healthcare and large tailwinds from a growing and aging population continue to make healthcare real estate one of the most stable asset classes for investors."
This healthcare leader has weathered some drastic financial storms, only to help HSS come through the challenges stronger.
Stacey Malakoff, chief financial officer for the Hospital for Special Surgery—a New York City–based healthcare provider with close to $2 billion in total revenue—wasn't planning to dedicate her career to healthcare finance, she aspired to work on Wall Street, but following the crash of 1987, life took her in a different direction—something she says she feels grateful for.
"I'm in my 32nd year with the Hospital for Special Surgery, I've been CFO for about 25 of them, and it's a phenomenal place," Malakoff says. "My job has changed every day for the last 32 years, but we don't vary from our mission. The purpose of this place is to get people back to doing what they love better and pain-free."
Malakoff recently connected with HealthLeaders to discuss how she has managed the facility's financial health over the last three decades, and where she hopes to take the organization in the future.
HealthLeaders: Over the time that you've been with the organization, you must have seen peaks and valleys of great financial success and also great financial stress. How has the organization managed those peaks and valleys?
Stacey Malakoff: When I started here in1990, we had somewhere around $90 million in revenue. Imagine a hospital in 1990 with just $90 million in revenue, eight operating rooms, and about 25 orthopedists on staff. New York State was in a regulated environment in the '90s and so the hospital didn't have a strong balance sheet. It was basically breaking even to losing money. The state helped you along, but when deregulation occurred in 1998, HSS simultaneously went through a growth period. [And] we started to see a financially stronger HSS, especially over the last 15 years.
HL: How did the pandemic impact HSS financially?
Malakoff: Financially, the impact was much bigger for us than it was medically because we had doctors treating COVID-19 patients. So, you are taking a hospital that was running at over 100% capacity, and you completely shut it down. We also kept everyone on our payroll, and there were no furloughs or layoffs. But our capacity dropped to about 5% because we could only do emergency cases and we basically turned into a med-surg hospital and had to train our staff to become med-surg. We spent a week doing that, which was expensive.
Looking at things from a financial perspective, you're trying to figure out where the cash is coming from, the insurance carriers [are] still paying receivables, and making sure we have lines of credit and cash coming in to support the institution. It's stressful to figure out how to keep going financially, but we're lucky to have a strong balance sheet. But watching that cash get depleted, you've got to figure out how to start back up. We're figuring out how to move HSS forward.
HL: What strategies are in place to move HSS forward?
Malakoff: We plan on having a positive margin this year—we'll miss our budget—but we'll be profitable—somewhere between a 1% and a 1.5% margin before anything in the market. That's just operations. So, we're preparing HSS with strong leadership and strong financials moving forward in challenging times. We're taking a proactive approach to evolving our care delivery system to be more flexible and cost-effective, while never, ever-changing our outcomes or quality, or our patient experience.
We were dealing with supply chain disruptions. Material shortages, and transportation issues during COVID. So, this year we opened a warehouse and we're now keeping materials in storage. We can't wait six to eight weeks for critical supplies, so now when we do have a shortage, we're able to pull items for our warehouse. We also work closely with our physicians and senior leaders when there's a shortage to quickly develop alternative vendor and product options.
We want to continue to do the best we can to keep our A-plus rating. But we also want to make sure to get back to our strong financial foundation, which we had prior to COVID. We are undertaking plans to improve our revenue growth. We want to enable our current MD practices to grow and add more people and see more patients effectively.
We also need to look at our efficiency, and managing the shift to outpatient from inpatient capacity. Everything that we're looking at will ensure that we're reshaping for the future.
Jackson Crabtree brings over a decade of accounting experience to the role.
Parkridge East Hospital—a Tennessee-based healthcare provider with 467 total staffed beds and over $2 billion in total patient revenue—has appointed Jackson Crabtree as its new chief financial officer.
Crabtree is a CPA with a Bachelor of Science in Business Administration from Tennessee Technological University and a Master of Accountancy from the University of Mississippi. He brings over a decade of accounting experience to the role. He will oversee all financial aspects of the organization.
Prior to joining Parkridge East, Crabtree served as an assistant chief financial officer at HCA Florida North Florida Hospital, a 510-bed acute-care facility in Gainesville, Florida, and as internal audit senior manager for HCA Healthcare in Nashville.
"Parkridge East is poised to continue growing and expanding to meet the needs of our community and Jackson’s background and depth of healthcare knowledge will be a key asset to helping us achieve our goals," Will Windham, CEO of Parkridge East Hospital, said in a release announcing the new CFO. "Jackson brings a wealth of experience to Parkridge East and we are excited to welcome him to our team."
The $230 million will be split across two grant categories, each with a focus on improving fundamental elements of healthcare.
The Tennessee Department of Health is on a mission to improve healthcare access and quality for the people of the state, and part of that objective is launching a $230 million grant program aimed at enhancing acute care hospitals and long-term care facilities across Tennessee.
TDH’s Healthcare Resiliency Program will launch on November 3, 2022, and award competitive grants to eligible applicants in two categories. The first is Capital Investment, and the second category is Practice Transformation and Extension. The goal is to expand patient capacity, upgrade practices and technology, and improve access to healthcare services in the state. The applications for Capital Investment grants— with $145 million in available funding—will go live on November 3, while the Practice Transformation and Extension grant applications—with $75 million in available funding—will be available on November 10.
"Improving the lives and livelihood of Tennesseans has been our commitment since day one of my administration," Tennessee Governor Bill Lee said in a statement announcing the program. "The Healthcare Resiliency Program is a fulfillment of our effort and a program where the impacts will be long-lasting and generational."
The grants are being funded through the American Rescue Plan, which passed Congress in March 2022, according to the statement. Tennessee has received $3.9 billion in these funds. In August of last year, the state’s Financial Stimulus Accountability Group dedicated $230 million in recovery funding to TDH for healthcare modernization and transformation projects.
"Quality healthcare is more important than ever to our local communities," Lt. Gov. Randy McNally said in the release. "This grant will provide healthcare improvements that will pay dividends in the present and for years to come. I greatly appreciate the work of the governor and my colleagues on the Fiscal Accountability Group for their work in making sure the State of Tennessee spends these grant funds appropriately and efficiently."
The two healthcare providers will combine on December 1, 2022.
The Board of Trustees for The University of Kentucky has approved a plan that will make King's Daughters—a system comprised of two acute-care hospitals totaling 465 licensed beds—part of UK Healthcare—a healthcare provider with over $6 billion in net patient revenue.
"Our vision is for the University of Kentucky to advance the Commonwealth in everything that we do. The health and well-being of our people is critical to that vision," UK President Eli Capilouto said in an email release. "King's Daughters and its team will help UK move this vision forward in Eastern Kentucky and the success of this relationship is a testament to the power of UK’s work to advance the Commonwealth."
Leaders with King’s Daughters and UK have been working together for the past 18 months as members of the non-profit Royal Blue Health LLC. Combining UK and King’s Daughters will expand healthcare access for the people of Kentucky.
The UK Board approved making King's Daughters part of UK effective Dec. 1, 2022. The transaction involves a "member substitution," which the statement says is a common method for bringing nonprofit systems together. In this case, it involves UK—through a subsidiary called Beyond Blue—obtaining all the membership rights for RBH. The corporate structure of King's Daughters will remain intact.
"King’s Daughters has been serving the healthcare needs of Eastern Kentucky, southern Ohio, and western West Virginia for more than 120 years," said Kristie Whitlatch, president and CEO of King's Daughters said in the release. "Expanding the relationship with the University of Kentucky gives me great confidence we are positioning the health system and all its subsidiaries to be stronger for generations to come."