Colorado’s hospital systems aren’t expecting this financial year to be much better after a challenging 2022, though leaders said they have plans to try to bring expenses under control.
Hospitals in the state had a combined profit margin on patient care of 4.7% in 2022, which was about half their margin in 2021, according to the Colorado Hospital Association. Counting investment losses, their total profit margin dropped to 1.5%, compared to about 14% in each of the previous three years.
Julie Lonborg, vice president of communications and media relations at the Colorado Hospital Association, described the 2022 financial results as a blow to the industry. Hospitals need about a 4% margin to keep up with maintenance on their buildings and equipment, and with other costs of continuing to provide care, she said.
“We have a whole lot of people below that,” she said.
The Denver Post spoke to leaders from the state’s major hospital systems about how they plan to address their financial challenges in 2023.
Centura Health, which is going through a transition as its Adventist and Catholic hospitals unwind their partnership, didn’t make leaders available to discuss their finances in-depth. Both lost money in the first nine months of 2022, though AdventHealth eked out a marginal profit on patient care, according to state data.
Denver Health lost money on patient care in the first three quarters of 2022, with a margin of -3.8%. With investment losses, the gap between revenues and expenses widened to -7.7%.
Donna Lynne, who took over as CEO of Denver Health in the fall, said she expects the hospital to break even this year and hopefully return to more solid margins in 2024. Denver Health lost about $34 million in 2022.
The hospital has to have at least a slim profit margin before it can reconfigure its buildings to address patients’ needs, let alone look at expanding services, Lynne said.
“Breaking even may sound like it’s a good thing, but it’s really not,” she said.
The hospital’s biggest challenge last year was the need to spend $52 million on contract labor, especially to bring in nurses, Lynne said. Workers in the Baby Boom generation are retiring — some a few years earlier than they had planned on, because of the pandemic — while fewer young people are pursuing nursing as a career, and those who are know that all hospitals need nurses and will compete to offer them the best wages, she said.
“They’re a scarce resource, and everybody wants highly trained nurses,” she said.
Lynne said she expects Denver Health’s expenses for contract labor will fall by about half this year, due to a combination of renegotiating rates with the hospital’s staffing company and being able to offer incentives to retain more permanent employees. It’s unrealistic to expect to totally eliminate contract staff, though, because the hospital needs to plug staffing holes when people with specific skills leave or during busier times, she said.
It also didn’t help that uncompensated care doubled from about $60 million in 2020 to $120 million in 2022, partly due to longer stays by patients who are homeless, Lynne said. More of Denver Health’s patients were uninsured last year, and while the hospital tries to sign those patients up for Medicaid, not everyone qualifies, she said.
Lynne said she hopes the city and the state will consider increasing their funding on an ongoing basis, so the hospital doesn’t have to lay off staff. The city of Denver kept its contribution to the hospital steady at $30 million despite increasing costs, and Denver Health already has picked the low-hanging fruit of savings, like reducing printing costs, cutting food at meetings and retraining existing employees instead of hiring new ones, she said.
“I’ve got to solve that $90 million problem” of the gap between uncompensated care and the city’s funding, she said. “It’s not all solvable by efficiency.”
UCHealth had a narrow profit margin on patient care in the first nine months of 2022, at about 3.5%. Investment losses pushed it into the red, though, with a total margin of -18.3%.
Tom Gronow, president and CEO of University of Colorado Hospital, said he also anticipates another challenging year, with personnel expenses as a major factor. Staffing agencies are expanding into other areas of care, like respiratory therapy, and competition for talent remains stiff in the Denver area, he said.
“When you have to rely on outside labor, that inflates the cost,” he said.
In the first six months of fiscal year 2023, which ran from July through December, UCHealth averaged about a 4% margin on patient care, and the amount of cash it has on hand has fallen, Gronow said. If the margin drops lower, it will become difficult to invest in projects like a new behavioral health unit and outpatient facilities for people who don’t need to come to an academic medical center, he said.
“We’ve seen our reserves trickle away,” he said.
The cost of supplies and medications also has risen faster than reimbursements from Medicare and Medicaid, which cover about two-thirds of patients treated at University of Colorado Hospital, Gronow said. Hospitals also are limited in their ability to pass increasing costs on to commercial insurers, since they negotiate rates once a year and can’t raise them in the meantime, he said.
The hospital has tried to use lower-paid staff, like certified nursing assistants and technicians, to take tasks that don’t require a nurses’ skill sets off their plates, Gronow said. That’s helped, as have programs to hire staff for less-skilled roles and pay for their education, with the hope they’ll stay with UCHealth, he said.
“We can play with care models… but there’s only so much you’re going to pull out in efficiencies,” he said.
HealthOne, which is part of the for-profit chain HCA Healthcare, was one of the few systems in Colorado that was profitable in the first nine months of 2022, with an 11.8% margin on patient care. That narrowed somewhat to 9.4% after investment losses.
Ryan Thornton, chief nurse executive for the HCA division in Colorado, said staffing costs were also a challenge for their hospitals. He estimated the entire HCA system spent about $24 billion on short-term staff last year, which was about 20% higher than in 2019, but that costs are starting to come down as more people elect to stay in one place.
“Now, I think we’re transitioning,” he said.
HealthOne’s facilities were better positioned than some hospitals, because they could more easily transfer nurses and others between states if one area was experiencing a COVID-19 surge, Thornton said.
Still, they also found ways to stretch staff, like having employees at lower skill levels take over routine tasks and using remote monitoring so that an experienced nurse could oversee newer frontline nurses in intensive care units, he said. (Unions representing employees in some of HCA’s hospitals in the Southeast have accused the company of understaffing, while HCA countered that it’s operating efficiently.)
The HealthOne hospitals have raised pay and offered incentives like $100 a month toward student loan repayment to keep staff, reducing the need to bring in traveling nurses, Thornton said. Staff turnover has dropped to the “low teens” across HealthOne, which is about half what it was earlier in the pandemic and is lower than the national average, he said.
“There’s more work to do,” he said. “We’re not there yet, but we’re advancing.”
The former SCL Health, which merged with Utah-based Intermountain Healthcare last spring, also was profitable for the first nine months of 2022, with a 2.8% profit on patient care and a 15.1% total margin.
Sean Fadden, regional vice president of finance for the former SCL hospitals in Colorado and three other states, said the merger itself had little immediate impact on profitability, though it did set up some opportunities to save money in the future. Intermountain’s Peaks region, as they’ve named those hospitals, started 2022 with strong financial performance but had to cope with increasing costs as the year went on, he said.
One of the biggest challenges in 2022 was that nursing homes and home health agencies were short-staffed, meaning patients had to stay in the hospital longer, Fadden said. Since most forms of insurance pay a bundled rate for a particular type of care, hospitals don’t get paid more if patients stay longer, even though they have to spend more on staff time and supplies, he said.
The Colorado hospitals should see decreased supply costs this year because Intermountain has more purchasing power to get good prices and is particularly good at distributing supplies, so hospitals don’t have the cost of maintaining stockpiles, Fadden said. They’re also asking staff for ideas to operate more efficiently, making the work easier for frontline employees while ideally also saving some money, he said.
While Intermountain hasn’t had to delay any capital investments, like replacing the Lutheran Medical Center building or adding new primary care clinics, it likely will continue to manage the same financial challenges this year, Fadden said.
“I think the trends we saw in 2022 will continue in 2023,” he said. “We’re not out of the woods in terms of getting back to normal.”
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