As of this writing, a hurricane is brewing in the Caribbean and is threatening to hit a highly populated section of western Florida later this week. Ian is currently tracking toward Tampa and is strengthening in intensity. People there are already undertaking preparations: boarding up windows, filling up gas tanks and making a run on supermarket supplies.

According to a new report, America’s hospitals will need to start making their own emergency preparations. This is due in no small measure to a financial storm that may be heading their way in the weeks and months ahead.

Sounding the Alarm

On September 15, financial management giant Kaufman Hall (KH), released a report that signals some very disturbing trends for the hospital sector. Among the dire predictions found in KH’s “The Current State of Hospital Finances: Fall 2022 Update” is a prediction that the industry is likely to lose billions of dollars by the time this year comes to a close. Indeed, 2022 is shaping up to be the worst year for hospitals—from a financial standpoint—since the beginning of the pandemic.

Other items pointing to a current downturn in facilities’ fortunes, per the report, are the following:

Margins remain depressed relative to pre-pandemic levels. After a difficult first half of 2022, optimistic projections for the rest of the year indicate margins will be down 37 percent relative to pre-pandemic levels.
More than half of hospitals are projected to have negative margins through 2022. Projections for the remainder of the year demonstrate an increase in hospitals with negative margins relative to pre-pandemic levels, to 53 percent.
Hospitals have faced a profound financial toll. Hospitals have incurred serious losses in 2022 relative to pre-pandemic levels—and future federal support is uncertain.
These statistics are not only sobering but seemingly unsustainable. What in the world is going on? After all, the president recently declared the pandemic has ended. The CDC has just rescinded its mask policy. The bad times are supposed to be over; nothing but good times ahead, right?!

Steering Currents of Calamity

There is something about this time of year—the change of temperatures, along with the oceanic currents and rotation of the earth—that inexorably steers Atlantic storms from the west coast of Africa all the way into the Gulf of Mexico. We can see the cause and effect. So, what is driving the financial crisis that so many hospitals are now experiencing?

According to the researchers of KH, there has been a perfect storm of financial and other factors that are currently swamping the wellbeing of America’s frontline healthcare institutions. From the report, we read the following:

Expenses are significantly elevated from pre-pandemic levels. Expenses are projected to increase throughout the rest of 2022, leading to an increase of nearly $135 billion over 2021 levels. Labor expenses are projected to increase by $86 billion, while non-labor expenses are projected to increase by $49 billion.

And hospital CFOs are still having to deal with the effects of events that hit their facilities in the first half of the year. During that period, the percentage of hospitals with negative margins was higher than the rate in 2021. This was found by KH to be primarily due to “the impacts of the Omicron COVID-19 surge and lack of further stimulus funding.” So, sicker patients and less federal funding contributed to financial issues in the first two quarters. The above excerpt also references labor expenses. According to KH, contract labor prices are nearly 500 percent higher now compared to pre-pandemic levels. According to one economist’s maxim, “wages are inflexible downwards.” This raises the question: can we realistically expect an easing of these contract rates that nurses and others are currently commanding? If so, when?

Keeping Above Water

There is still the issue of the end of those stimulus packages that were once being regularly pumped out by Congress. Assuming there will be no more infusion of funds from Washington, hospitals will be on their own to stem the tide of red. So, what can be done?

According to information gleaned from a recent article in Becker’s Hospital Review, one answer may be to simply cut costs . . . dramatically. Healthcare organizations in Michigan, Colorado and Ohio are among those cutting jobs or laying off workers. Citing financial pressures, Michigan-based BHSH System, a 22-hospital organization, announced the elimination of 400 jobs this month. A spokesman for the health system stated:

Our health system, like others around the nation, is facing significant financial pressures from historic inflation, rising pharmaceutical and labor costs, COVID-19, expiration of CARES Act funding and reimbursement not proportional with expenses.

Cutting jobs was this health system’s response.

Another health system in the western region of the United States, Centura Health, is reducing its workforce by 1 percent, citing inflation, supply chain disruptions and labor shortages as some of the most significant challenges it is facing. There are other examples, but the point is made. To stay afloat, many facilities have made the decision to simply cut jobs. That means cutting services. It will be up to each hospital board or administrator to determine which services are to be pared back, should they find staff cuts the most viable solution to the current crisis.