4 takeaways from Health Systems’ 2022 earnings report

Labor shortages, rising costs, and a year of cash crunch due to poor market performance many health systems and hospitals would like to forget.

“When you look at 2022, for a large part for the sector, it’s actually going to go down again as one of the worst, operating income years ever,” said Kevin Halloran, senior director at Fitch Ratings. Is.” “Some people get better as the years go by…but not everyone.”

Healthcare executives are expecting to see improvements this year, especially as the industry emerges from the COVID-19 pandemic and economic leaders work to slow rampant inflation.

Here are four key findings from the latest round of earnings reports.

The worries of the workers are not diminishing

High labor costs remain a top concern. Located in Birmingham, Alabama Encompass Health sees its profits falling by nearly 30% in 2022, partly driven by a 12.5% ​​increase in salaries and wages. The for-profit system managed a 31% year-over-year reduction in contract labor costs in the fourth quarter.

Contract labor costs began to normalize after peaking earlier in 2022, but for some systems, they spiked again in the fourth quarter due to the “triple-demic” — RSV, flu and COVID-19. Utilization of travel providers and their pay rates remain higher than pre-pandemic levels, suggesting more work needs to be done to reduce those costs.

Chief Financial Officer of Tenet Healthcare Daniel Cancellami told investors last month that the Dallas-based system’s labor costs have peaked in September, and they expect them to continue declining. The for-profit system focuses on replacing contract workers “to the greatest extent possible,” he said.

Health systems are seeing more traveling providers returning to permanent job options, including employers they left during the pandemic for higher-paying roles.

But a lot of improvement is needed. The labor shortage could create a cascading effect, Halloran said, where already strained hospitals may not be able to discharge patients due to shortages in low-acuity settings, which creates a further financial burden on facilities. Although moving in the right direction, contract labor costs are not expected to reset to pre-COVID rates in 2023, he said.

Better patient volume is not enough

Patient numbers boomed again, but often this was not enough to meet the rising costs. Located in Altamonte Springs, Florida AdventHealth reports 11% increase in operating expenses for 2022, Mayo Clinic in Rochester, Minnesota raised $1.2 billion or 8.1% in annual expenditure.

To cut costs, health systems looked to automation for administrative tasks, which resulted in some job cuts and will likely continue to do so. Rick Case, healthcare partner at professional services firm RSM, said he also took a close look at borrowing practices and capital expansion projects.

“I think all of our customers are looking at their spending structure and considering what they are able to change,” Case said.

Other systems opted to consolidate operational structures and remove layers of leadership. Located in Renton, Washington Providence, which will release earnings later this month, downsized its executive team in 2022 and reorganized its seven regional divisions into three.

Kaiser Permanente is relocating 10% of its workforce to Oakland, California to its regional headquarters in 2024 as part of a larger office consolidation plan to cut costs.

Added investment in pain

Performance in financial markets was generally poor and did more than dent the bottom line. The S&P 500 is down more than 15% in 2022 – causing problems for organizations investing in stocks and bonds.

Halloran said health systems typically see higher losses if they invest heavily in equity, a riskier investment option. He added that he sees the recent losses as a market reset after unusually high gains in 2021.

Kaiser Permanente lost $3.2 billion on investmentsA major contributor to the $4.5 billion net deficit posted in 2022 overall. Mayo Clinic foresees a $747 million shortfall in cash and investments for 2022, most of which stems from the investing side.

Some health systems saw improved investment performance in the last three months of 2022, which bodes well for the year. During the last quarter of the year, over $400 million in Investment gains boosted Boston-based Mass General Brigham’s net income Whereas Chicago-based CommonSpirit Health said it received $719 million in incentives,

properties are being revalued

Hospitals and health systems were forced to reevaluate where their money goes, directing it to the services that generate the most revenue and divesting assets that don’t.

“No one wants to say that COVID is behind us, but we are certainly in a very different situation than we were a year ago and certainly two years ago,” said Doug Anning, a shareholder at the law firm Polcinelli. are in.”

One example is Tenet’s ongoing investment in ambulatory surgery centers through subsidiary United Surgical Partners International. CEO Dr. Saum Sutaria said on a February investor call that the company plans to invest $250 million in the space each year, referring to it as a “sustained and far-reaching tailwind.”

Sam Hazen, CEO of Nashville, Tennessee-based HCA Healthcare, told investors in January The system is seeing some opportunities in the hospital sector as it continues to downsize those facilities. In October, LCMC Health agreed to buy HCA’s three Louisiana hospitals for $150 million.

Community Health System in Franklin, Tennessee, said this week it is selling two hospitals in North Carolina to Novant Health, one of the largest providers in that state, in a $320 million deal.

Anning said merger and acquisition deals among their client base haven’t slowed down as hospitals look for new ways to bring in revenue. Transactions are generally strategic based on customer needs, not growth deals, he added.

Source link

Leave a Comment