“Unsustainable”: The state of hospital finances in 2022 – KELOLAND.com | CarTailz

SIOUX FALLS, SD (KELO) – Last month, the CEO of Sanford Health sent a letter to employees announcing layoffs at the organization, primarily in managerial and non-clinical roles. Similar personnel changes are taking place at Avera Health Systems, but it’s not just an issue in South Dakota.

Hospitals and healthcare systems across the country are working to reduce costs.

“Inflation is not uncommon in the US economy, two or three percent is quite reasonable. But we don’t think six or eight percent inflation is appropriate,” said Joseph Santos, director of the SDSU Ness School of Management and Economics.

From groceries to petrol, car repairs and coffee shops, the cost of almost everything has risen uncomfortably all year round.

“Any one of us who’s gone to a fast food restaurant lately knows what used to cost six dollars probably costs close to twelve dollars now,” said Tim Rave, president and CEO of the South Dakota Association of Healthcare Organizations ( SDAHO).

“You need more money to buy it, whatever it is,” Santos said.

This includes the supplies and services that healthcare organizations need to function.

“We have a lot of devices here at the hospital, they’re all managed by vendors who maintain them, and they’re all up at least 10 percent since the beginning of the year,” said Melissa Wagner, Brookings Health Systems’ chief financial officer.

From syringes to PPE, hospitals like Brookings Health System struggle with inflated utility costs, but labor market pressures are their biggest increased expense.

“Like everyone else, we had to increase the number of traveling nurses and temporary workers, which is an enormous additional effort for the organization,” said Wagner.

“As with everyone else in the industry, it is difficult to find workers at the moment. The problem is in healthcare, you have to have someone to take care of the sick,” said Tim, Rave president and CEO of the South Dakota Association of Health Care Organizations.

Rave says these problems aren’t unique to South Dakota.

“Everyone across the country is not only facing this problem, many are in worse shape than we are.

According to Rave, many health expenditures have risen significantly more than the average inflation rate of six to eight percent.

“Hospitals have experienced an inflationary increase in spending of 25 to 40 percent in the year to date,” Rave said.

“This is just a reality of inflation working its way through an economy in a very uneven way,” Santos said. “We say it’s 6 percent of the average price level, but the reality is some goods and services are going up much more, others not at all.”

Some expenses that have stagnated during the year of rising inflation are insurance premiums and co-payments.

“It all comes down to the negotiated rates that are set with our government payers as well as our commercial payers,” Wagner said.

These contracted rates typically last at least a year, meaning hospitals, unlike other companies, have not been able to adjust their rates to offset their rising expenses.

“Starbucks can add a dollar to their latte if they need to to cover their costs, we just can’t do that here in healthcare,” Wagner said.

“Hospitals don’t have that luxury because the agreements they make with insurers and the federal government on reimbursement are set from year to year and don’t change spontaneously,” Rave said.

“They don’t have the power to set prices in a meaningful way, but their costs keep going up so they end up in a very tight situation now,” Santos said.

Economists like Santos say in the business world this type of financial squeeze can become so severe that a company simply cannot function.

“It’s not a sustainable model because ultimately it means you’re operating at a loss and it’s not a position you can stay in very long,” Santos said.

A report released this September by the American Hospital Association shows that hospitals will face billions of dollars in losses in 2022, with more than half of US hospitals operating at negative margins for the rest of the year.

“In a hospital, they generally make a margin of between one and three percent year over year,” Rave said. “With increases in spending of 25 percent, certainly not up to 40 percent, that’s not sustainable.”

“We had this volume increase to offset these costs, so we were able to get a great margin,” Wagner said.

Brookings Health Systems says it’s feeling the financial pressures of inflation but has so far been able to keep up thanks to a 31 percent increase in patient numbers since 2019. Like many healthcare providers, they’re hopeful that renegotiated contracts in the new year will help, but they know it won’t fully solve the industry’s woes.

“Even these insurance companies are only partially willing to negotiate,” said Wagner.

This uncertainty is why many healthcare organizations are doing everything they can to reduce costs.

“If you’re trying to cut costs, look for places where you can cut costs and still provide the essential services,” Santos said.

Santos says that’s likely why Avera and Sanford are cutting administrative or other jobs not directly related to the delivery of health care.

“We don’t have multi-layered management,” Wagner said. “We have many labor directors who work with their employees on the ground.”

It’s another reason Brookings Health System says they’re in better financial shape right now, but like any healthcare provider, they’re concerned about the future.

“We must not fail, we must provide that service to our community and our larger systems cannot fail because there are tertiary institutions that will take care of the sicker and more specialized care when we don’t have our residents and our patients would have to travel further to take advantage of these specialized services,” said Wagner.

“Wherever someone is sick, ill or injured, they must have access to medical care,” Rave said. “These are scary times; We need to make sure we’re making the right decisions to keep access open to every South Dakotan throughout the state.”

Federal funds helped support health systems during the peak of the pandemic, but now that financial help is over. Santos says if the financial strain on the healthcare industry extends into 2023, it will likely require some sort of federal legislation or intervention to ensure this vital service continues across the country.

KELOLAND News has reached out to Sanford and Avera Health for their contribution to this story. Both health systems declined an interview.

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