Matthew Arsenault chats with HealthLeaders about expanding the health system among economic hardships and labor shortages.
The CFOs at hospitals and health systems are dealing with a myriad of challenges that have been impacting their organizations' financial wellness, and one large challenge has to do with staffing and labor.
Indeed, 85% percent of hospitals, medical groups, home health providers, and other healthcare facilities are experiencing a shortage of allied healthcare professionals, according to research from AMN Healthcare. Burnout and insufficient wages are some of the leading contributing factors to this shortage.
As organizations work to understand what financial wellness in a COVID-19-adjacent world looks like, reevaluating certain projects—like expanding—will be a critical factor in maintaining their economic well-being.
Baptist Health South Florida, a Coral Gables, Florida-based healthcare provider with $5.1 billion in total revenue, has been working hard to overcome the monetary pressures being placed on the organization by the ongoing labor crisis as well as other factors currently impacting healthcare providers. CFO Matthew Arsenault recently spoke with HealthLeaders and shared his views on how organizations can meet the demands of these challenges.
HealthLeaders: What can healthcare providers do to avoid overpaying for labor?
Matthew Arsenault: The pandemic affected all aspects related to labor and that was really due to that labor shortage and clinical labor shortage that existed at the time. So, we're doing many things here at Baptist Health to deal with that. One thing is a greater focus on our employees. We've always been an employee-friendly organization that’s consistently ranked among the top in the country. We need to make sure our employee experience is great and that we pay competitively within the market—which can be a challenge, but it's something we're committed to as an organization.
We’re also investing in the pipeline. It’s critical to have that pipeline of nurses and clinicians who are out in the community helping to educate more nurses and other clinical staff. We've partnered with numerous academic institutions throughout South Florida to help support that initiative.
HL: Inflation is something hospitals have no control over. So, what solutions exist to the challenges caused by rising inflation?
Arsenault: The biggest part of that is just reassessing any plans for growth and major capital, just like anybody would normally do with their personal decisions with regard to major purchasing. Health Systems must do the same. We are in a community and a service area that is growing through people continuously moving into South Florida. So, we want to make sure that we provide care, but deciding which projects happen when and evaluating the cost of those projects and inflationary environment is something that we're constantly doing more of now, and more frequently than we have been historically because of the current inflationary environment.
HL: What are your growth and investment plans for 2023?
Arsenault: One of our major projects is rebuilding our main hospital in Boca Raton, Florida. We’re also working on increasing our outpatient footprint. We have another major project we're evaluating but I can’t go into details on that yet. We're in the evaluation mode as it relates to that. Again, I think that one thing that's a little bit unique with South Florida is the opportunity for real rapid growth. So that's what really trying to assess the timing of those projects because the demand is there.
HL: You mentioned increasing your outpatient footprint. From other conversations with CFOs in healthcare, it seems that there is a trend of shifting to more outpatient procedures. Is that something Baptist considers a priority and what makes the shift so important?
Arsenault: We've always had a very large outpatient footprint throughout the community, and I think that really served us and our patients well. It's all about how you provide easy access to care for patients, whether it be in a virtual setting, whether it be in an outpatient clinic, or whether it be in an urgent care center. So, it’s about continuing to build upon that. I think that shift to outpatient is a big part of that.
HL: What do you consider to be a critical part of the CFO role?
Arsenault: We have to really be great at explaining to operational folks and strategy folks, the financial impact of our decisions, and how we can work together to provide patient care in the most cost-effective manner. I love that part of my role now is to educate folks about the finances of what they're doing and help them understand the role finance plays. We don't want our clinicians to be finance folks, we want them to care for patients. It’s about how we can educate them so that they know enough about what they're doing and make smart decisions to still provide the right care.
Paul Konopacki began his new role on January 3, 2023.
Munson Healthcare—a Travers City, Michigan-based healthcare provider with 442 beds—has named Paul Konopacki as its new chief financial officer.
"Paul stood out above the rest as a seasoned financial executive with an approachable leadership style," Munson Healthcare President and CEO Ed Ness said in a press release. "His well-rounded senior leadership experience spans physician practices, hospitals, and risk-based contracting and includes finance and accounting management. As we seek to meet new patient expectations and adjust to the ever-changing healthcare industry landscape, Paul has the experience, demeanor, vision, and leadership skills to support our organization through this evolution."
Konopacki previously served as CFO for Corewell Health – Lakeland Division in Grand Rapids. There he also served as the system financial executive for automation, he led the organization’s value-based care efforts and oversaw physician compensation.
"I’m grateful for the opportunity to join a great organization that is respected around the state and nationally," Konopacki said in the release. "I look forward to helping the health system stay financially strong to meet the needs of our communities."
Of the 7,000 hospitals across the U.S., 1,288 are registered as investor owned.
While for-profit and not-for-profit share similarities in how they operate, some of the main differences between these organizations can be found in how they pay taxes and raise money.
Not-for-profit healthcare providers don’t pay property and income tax, according to the CT Mirror, unlike their for-profit counterparts, who also have access to greater resources for raising money. For-profit hospitals also have a responsibility to the investors who fund their operations, fewer profits mean fewer investments.
Of the nearly 7,000 hospitals across the U.S., 1,228 of these are registered as investor-owned facilities, according to data from NiceRX, an organization that works with providers to ensure patients have access to low-cost medications.
"Not only is the healthcare industry important for the well-being of U.S. citizens, but it’s also a lucrative business for investors," NiceRX said in its report. "That’s why we wanted to find out which states earn the most money through their hospitals. We’ve looked at the individual hospitals earning the most through net patient revenue, the states with the most for-profit hospitals, and the states who earn the most through their hospitals."
NiceRx took a deep dive into the healthcare industry’s financials per state and created a list of the top 10 states with the highest percentage of for-profit hospitals.
Nevada: 54.3% of hospitals in the state are for-profit.
Texas: 51.8% of hospitals in the state are for-profit.
Florida: 48.1% of hospitals in the state are for-profit.
New Mexico: 42.9% of hospitals in the state are for-profit.
Arizona: 42% of hospitals in the state are for-profit.
Tennessee: 40.5% of hospitals in the state are for-profit.
Louisiana: 40.3% of hospitals in the state are for-profit.
Oklahoma: 40.2% of hospitals in the state are for-profit.
Alabama: 32.7% of hospitals in the state are for-profit.
Utah: 32.1% of hospitals in the state are for-profit.
Families whose household income was equal to or less than 350% of the federal poverty guidelines are eligible for aid.
Norton Healthcare—a Louisville, Kentucky-based healthcare provider with over 340 locations throughout Kentucky and Southern Indiana and over $1 billion in total patient revenue—has announced it is expanding its patient financial assistance program.
Before the change, families whose household income was equal to or less than 300% of the federal poverty guidelines were eligible for Norton Healthcare's financial assistance program. Now, that income level has increased to 350% of the federal poverty guidelines. For example, a family of four with a combined household income of up to $105,000 now could be eligible for financial assistance. Another key change to the program is that individuals can now apply for assistance before they need medical assistance. Previously, patients and families would complete an application after receiving treatment, including after an emergency.
"By providing this proactive approach to our financial assistance program, families across the region can put their health first without the burden of worrying about the financial aspects at the point of care," Russell Cox, president, and CEO of Norton Healthcare said in a release. "Everyone in our community deserves access to quality health care. We are committed to creating initiatives and programs that remove barriers and work toward eliminating challenges for those seeking care."
Dennis Laraway is taking over for interim CFO Tony Helton.
Cleveland Clinic—an Ohio-based healthcare provider with over $1 billion in total revenue—has appointed healthcare finance industry veteran, Dennis Laraway, as its new chief financial officer—effective March 13, 2023.
Laraway is joining the organization from Banner Health, a $12 billion health system based in Phoenix, where he served as CFO for six years. While working at Banner, Laraway implemented payer-to-provider strategies; led the organization’s insurance and value-based care initiatives; provided leadership to Banner Health’s academic relationship with the University of Arizona; directed Banner Health’s capital markets programs, rating agency reviews, and investor relations. He also provided financial leadership during the COVID-19 pandemic.
"Cleveland Clinic’s clinical, teaching, and research capabilities are world-class," Laraway said in a release. "I've found the culture and leadership teams across the enterprise to be equally impressive. This is a compelling opportunity and I'm honored to join the team as we lead the Cleveland Clinic through some of the most disruptive challenges seen in our nation’s (and global) health sector."
Laraway is taking over the CFO position at Cleveland Clinic from interim CFO Tony Helton. He has been serving in the role since May 2022. Helton will return to his previous role as the executive director of revenue cycle management.
"We look forward to welcoming Dennis to our organization," Tom Mihaljevic, M.D., CEO and President of Cleveland Clinic, said in the announcement "He is a proven leader with experience developing business approaches for complex healthcare organizations. We share a commitment to building on our history of financial stewardship, which puts us in a solid position to face financial challenges, provide quality patient care, and support our communities."
The 15-year industry veteran is taking over for retiring CFO Clifton Mills.
HCA Midwest Health—a Kansas City-based healthcare provider with seven hospitals and over $1 billion in total revenue—has announced that Miah Stutts has become the new chief financial officer for the organization, following the retirement of longtime HCA Midwest Health CFO Clifton Mills.
"Through the various roles Miah has had during her HCA career, she has developed strong financial management expertise with a proven track record of managing and optimizing growth, operational effectiveness, and margin expansion," HCA Midwest Health President Keith Zimmerman said in the announcement. "Miah's broad business acumen will be an invaluable asset as HCA Midwest Health continues to expand services and access points to meet the region's growing demands."
Stutts has over a decade of healthcare finance experience, having spent the bulk of her career working within the HCA organization. She joins HCA Midwest Health from its Central West Texas Division, where she served the past two years as CFO for St. David's Medical Center.
"I'm honored to be chosen for the CFO position with HCA Midwest Health, which is not only Kansas City's healthcare leader but a forerunner in innovation and quality," Stutts said in the announcement. "I look forward to collaborating with HCA leadership and helping to drive the financial strategy of the organization as we expand access to high-quality, compassionate care and services to further improve the overall health and well-being of the communities we serve."
It will take efficiencies in staffing, recruiting the next generation, and a culture change to solve these costly issues.
Hospitals and health systems are at a crossroads. To achieve success, they must embrace new strategies to maintain and grow their financial well-being.
One of the key issues that has continued to plague healthcare providers is labor. Employee costs are going up, while the number of clinical staff has been going down. The quit rate among nurses in October 2022 was 2.5%, the highest of any month before 2021, according to research from the Lown Institute. Burnout due to demanding and burdensome schedules seems to be the main culprit in this exodus of healthcare providers.
Ann Duffy, the chief financial officer for Cottage Hospital—a Woodsville, New Hampshire, healthcare provider with 35 total staffed beds and $38 million in total net patient revenue—recently connected with HealthLeaders to discuss the labor challenges hospitals are facing and the best strategies to overcome them.
HealthLeaders: What is the biggest economic obstacle facing healthcare providers today?
Ann Duffy: The workforce shortage is the main contributor to our financial challenges. Our labor costs—contract labor, and travel staff costs—are the number one challenge. Because of inflation, our drug costs have increased by nearly 30% since 2019. Overall, our operating expenses are up 25% since 2019. And of course, COVID is still an issue impacting us. Yesterday, our entire health information department had zero staff because the department was either sick or stuck because of a snowstorm we had here. If someone has COVID, they can be off for up to 10 days, which has a big impact on our operation.
HL: What strategies are in place to deal with these issues?
Duffy: We're focusing on strategic planning and performance improvement plans. We are reviewing our staffing by department, looking at each role and how they are functioning, and we are looking at what each department needs before we post a new position.
We’re looking at the efficiencies in our staffing, and in our processes. We're highly focused on process improvement. We are also working with our HR department to fill the position with the most qualified candidates. We offer remote work and a flexible schedule, and we're trying to incentivize our employees and staff to reduce our contract labor and travel staff.
Eighteen months ago, we established a travel workgroup that meets biweekly and includes nurses, lab techs, radiology techs, and other staff who historically never had to travel before. We’re also incentivizing our employee staff by offering programs like a 12-week contract to work a certain number of shifts. If they meet the contract terms, they’ll receive a bonus at the end of the 12 weeks. We've also increased the pay for our per diem staff.
HL: Many CFOs have talked about the rate of clinical staff turnover having to do with these professionals leaving healthcare altogether. Are you seeing staff leaving healthcare? What do you think hospitals and health systems must do to attract people back into these positions?
Duffy: People are leaving healthcare because they are burnt out. It’s going to take a community; it’s going to take effort at the state and federal level to overcome some of these challenges. We need to increase the capacity of our nursing education programs. We're just not producing enough nurses and clinical staff to meet the needs of our healthcare system in our communities. Whether it's incentivizing high school students to pursue a career in healthcare by offering more scholarships, providing reimbursement, or even waiving costs altogether. Getting young people to pursue healthcare must be a priority—incentivizing them from a cost perspective will be important.
HL: What about the people who have left? How do you get them back?
Duffy: We have to assure them that we can create an environment where they're not overworked—and that is a big struggle right now. How can we do that when you only have a certain number of people to meet the needs of the community? We don't have a solution, but what we’re doing internally is trying to create a culture where people want to work at Cottage Hospital. And for many people it is about more than just money, it’s about how they feel when they come to work every day. Our CEO has a background in nursing, and she has actually come in and worked as a licensed nursing assistant.
HL: Do you think more healthcare providers should engage leadership that has a background in clinical care?
Duffy: I do believe that's extremely beneficial. It has been beneficial for us because our CEO can communicate with the clinical team because she has been a nurse, she has been a director of inpatient, she has been the CNL, and now she is CEO. She understands the boots-on-the-ground work that it takes every day to care for our patients. So that certainly is a benefit and a great strategy.
December was the only month last year that hospitals saw positive year-to-date margins.
Hospitals and health systems have been struggling financially since before the pandemic, but the complications caused by the crisis exacerbated those financial challenges to the extreme, making it hard for some organizations to recover.
Each year since the beginning of the pandemic has seen increasing economic hardships thrust onto hospitals, but according to new data from Kaufman Hall, 2022 was the worst year financially for hospitals and health systems since COVID-19 began. The analysis shows that negative margins continued to plague organizations throughout the year while accelerating labor expenses also cause fiscal hardships for providers.
The median year-to-date operating margin index for hospitals was 0.2% in December, this was the only month in 2022 where hospitals saw positive year-to-date margins, according to findings in the latest National Hospital Flash Report from Kaufman Hall. Half of U.S. hospitals finished the year with a negative margin as rising expenses outpaced revenue increases. Hospital labor expenses increased by 2% from November to December 2022. Total direct expense per provider FTE increased to $592,430 in the fourth quarter of 2022, a 5% increase compared to the 2021 fourth quarter.
"As we saw throughout 2022, the labor market was unkind to hospitals and provider groups," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in the report. "Given that labor and non-labor expenses are unlikely to recede in 2023, hospitals can embrace better workforce management strategies and leverage their relationships with post-acute care settings to maximize current patient volume trends."
Throughout 2022, hospitals also saw a change in the way patients seek care. There was a rise in hospital patient volumes last year, particularly in outpatient settings because patients were moving away from emergency room visits and towards care that is delivered in ambulatory and outpatient surgical settings.
"The pandemic fueled a fundamental shift in how patients are choosing to access their routine care," Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said in the report. "Providers are seeing more patients than ever, particularly in primary care settings, and care is moving away from hospitals. Medical groups should seek to improve individual provider productivity and efficiently integrate advanced practice providers to meet the increase in volume and successfully bend the cost curve."
Earnings per share and revenue grew year over year, but HCA’s 2023 guidance fell short of analyst expectations.
HCA Healthcare—a Nashville-based healthcare provider operating 182 hospitals and 2,300 ambulatory sites of care—has reported its financial results for the 2022 fourth quarter, which showed a year-over-year rise in revenue and net income.
For the fourth quarter of 2022, HCA Healthcare reported revenue of $15.49 billion, versus $15.06 billion for the same period in 2022. Net income grew to $2.08 billion, or $7.28 per diluted share, compared to $1.81 billion, or $5.75 per diluted share for the 2021 fourth quarter.
"The last three years have been an extraordinary experience for everyone at HCA Healthcare," Sam Hazen, CEO of HCA Healthcare, said in the earnings report. "It was truly a challenge like no other, but I strongly believe that our board, our management teams, and our caregivers have shined through it all."
Despite the year-over-year growth, HCA Healthcare’s 2023 guidance came in below analysts’ expectations, though EPS for the quarter beat projections. The FactSet consensus for EPS in the 2022 fourth quarter was $4.79, according to MarketWatch. Analysts anticipated revenue of $15.6 billion for the quarter.
Looking ahead to the 2023 full fiscal year, HCA Healthcare said it expects revenue to range between $61.5 billion and $63.5 billion, earnings between $4.5 billion and $4.9 billion; and earnings per share between $16.40 and $17.60. FactSet analysts were looking for EPS guidance of $18.17 for fiscal 2023, according to MarketWatch.
CHQPR says there needs to be a fundamental shift in the way these organizations are paid.
Rural hospitals can be a beacon of hope for the isolated communities they serve, but these organizations can face a unique set of financial challenges that make keeping their doors open more difficult.
Between 2005 and 2019, more than 150 rural hospitals closed, according to data from the Center for Healthcare Quality & Payment Reform. The onset of the COVID-19 pandemic caused another 19 rural hospitals to close in 2020, the most closures for any year in the previous decade. About 30%, or over 600 rural hospitals across the U.S. are in danger of closing due to persistent financial losses, low financial reserves, and rising expenses.
"While most urban hospitals and larger rural hospitals make profits on patient services, most small rural hospitals lose money delivering services to patients," CHQPR says in its report. "The biggest cause of these losses is inadequate payments from private insurance plans. Although large hospitals can offset losses on Medicaid and uninsured patients with the profits they make on patients with private insurance, small rural hospitals cannot."
Rural hospitals are paid less than what it costs to provide care, according to CHQPR. Rural hospitals will lose money when providing services to patients because of insufficient payments from private insurance companies. Insurance providers tend to pay rural hospitals less than their larger counterparts for the same services.
"The problem is not just the amount of payment, but the method of payment," CHQPR says in its report. "Current payment systems do a poor job of supporting the delivery of high-quality healthcare in rural areas. If a small hospital provides primary care and other services designed to help patients stay healthy, the number of ED visits and treatment services at the hospital is likely to decrease, which will increase financial losses for the hospital."
To help keep rural hospitals open, CHQPR says there needs to be a fundamental shift in the way these organizations are paid. A more patient-focused payment system for rural hospitals would ensure that essential services remain available, ensure these services are delivered in a timely fashion, and support the delivery of high-quality and affordable care that is appropriate for the patient’s needs.
"A patient-centered approach to payment is designed to support the services that patients need, not to increase profits for either hospitals or health insurance plans," CHQPR says. "Since the payments are specifically designed to support both the fixed and variable costs of delivering services, the hospital would neither lose money when patients are healthier nor make excessive profits when patients need more services."