Labor shortages, rising costs and underperformance in financial markets led to a year of losses many in the industry would like to forget.
“When you look back to 2022, for a significant portion of the sector, it’s going to go down again and really be one of those years of operating income,” said Kevin Holloran, senior director at Fitch Ratings. worst ever,” said Kevin Holloran, senior director of Fitch Ratings. “Some people get better as the years go by…but not everyone.”
Healthcare industry executives are hoping to see improvement this year, especially as the industry emerges from the COVID-19 pandemic and economic leaders work to slow rampant inflation .
Here are four key takeaways from the latest round of earnings reports.
Labor anxiety does not subside
High labor costs remain a top concern. Birmingham, Alabama-based Encompass Health has seen its profits plummet by nearly 30% in 2022, in part due to a 12.5% increase in wages and salaries. The for-profit system managed to reduce its annual contract labor costs by 31% in the fourth quarter.
Contract labor costs began to normalize after peaking in early 2022, but for some systems, they rebounded in the fourth quarter due to the “epidemic trinity” – RSV, influenza and COVID -19. The use of travel service providers and their pay rates are still higher than pre-pandemic levels, requiring more effort to reduce those costs.
Last month, Tenet Healthcare’s CFO, Daniel Cancelmi, told investors that the Dallas-based system’s labor costs peaked in September and he expects them to continue. reduce. He said the for-profit system is focused on replacing contract workers “to the greatest extent possible.”
Health systems are seeing more and more mobile providers return to permanent work options, including with employers they left in the age of translate for higher-paying roles.
But significant improvement is needed. Holloran notes that labor shortages can create a cascading effect, where already overcrowded hospitals are unable to discharge patients because of shortages in less severe facilities. , which creates an additional financial burden on institutions. While on track, contract labor costs in 2023 are not expected to return to pre-COVID levels, he said.
The number of better patients is not enough
Patient numbers rise again, but often not enough to cover the increased costs. Altamonte Springs, Florida-based AdventHealth reported an 11% increase in operating costs for 2022. The Mayo Clinic in Rochester, Minnesota, reported an annual cost increase of $1.2 billion, or 8, first%.
To cut costs, health systems have sought to automate administrative functions, resulting in some job cuts and likely will continue to do so. Rick Kes, healthcare partner at professional services firm RSM, says it’s also taking a closer look at borrowing practices and capital expansion projects.
“I think all of our clients are looking at their cost structure and looking at what they are likely to change,” says Kes.
Other systems have chosen to strengthen operational structures and remove elites of leadership. Renton, Washington-based Providence, which will announce earnings later this month, has downsized its executive team in 2022 and reorganized its seven regional divisions into three.
Kaiser Permanente in Oakland, California, will relocate 10% of the workforce at its regional headquarters by 2024 as part of a larger office consolidation plan to cut costs.
Invest more in pain
Performance in the financial markets is generally poor and not only reduces profits. The S&P 500 is down more than 15% in 2022 – causing problems for institutions investing in stocks and bonds.
Holloran said health systems typically suffer higher losses if they invest heavily in equities, a riskier investment option. He said he views recent losses as a market reset following an unusually high rally in 2021.
Kaiser Permanente suffered a $3.2 billion loss on investments, a big cause of the $4.5 billion overall net loss the company posted in 2022. The Mayo Clinic saw the cash fall. cash and investment down $747 million for 2022, much of which stems from the investment side.
Some health systems have improved their investment performance in the last three months of 2022, which bodes well for this year. In the last quarter of the year, more than $400 million in investment-related gains underpinned Boston-based Mass General Brigham’s net income while Chicago-based CommonSpirit Health said it raised 719 millions of dollars.
Property is being revalued
Hospitals and health systems are forced to reassess where their money goes, directing it to the services that generate the most revenue and divest those assets that don’t.
Doug Anning, a shareholder in the law firm Polsinelli, said: “No one wants to say that COVID is behind us, but we are certainly in a much different situation than we were a year ago and certainly are. two years ago.
One example is Tenet’s ongoing investments in ambulatory surgery centers through its subsidiary United Surgical Partners International. The CEO, Dr Saum Sutaria, said in an investor call in February that the company plans to invest $250 million in the space each year, seeing it as a “favorable headwind”. sustainable and far-reaching”.
Sam Hazen, CEO of Nashville, Tennessee-based HCA Healthcare, told investors in January that the system is seeing little opportunity in the hospital space, as it continues to exclude abandon those facilities. In October, LCMC Health agreed to buy three HCA hospitals in Louisiana for $150 million.
The Public Health System in Franklin, Tennessee, said this week it will sell two North Carolina hospitals to Novant Health, one of the state’s largest providers, in a 320-dollar deal. millions of dollars.
Anning said mergers and acquisitions between his client base are not slowing down as hospitals look for new ways to bring in revenue. The deals are often strategic deals based on customer needs, not an agreement to grow for the sake of growth, he said.
