Dire Straits: Hoosier Hospitals are Hemorrhaging Money

Dire Straits: Hoosier Hospitals are Hemorrhaging Money

Indiana hospitals are seriously strapped for cash and the state’s experts are describing a “very real and growing threat” to healthcare access in the state. In a rather eye-opening report, leaders from multiple organizations came together to describe the current state of hospital finances as bleak. Red margins can be found throughout the industry, and almost no network, large or small, remains untouched.

“Indiana hospitals are facing unprecedented financial strain, but we remain committed to providing accessible, high-quality care to Hoosiers,” said IHA President Brian Tabor. “We must make sure our hospitals and the thousands of caregivers who sustain them have the resources they need to rebuild and remain viable in communities across the state.”


The Data

New data from Chicago-based consulting firm Kaufman Hall indicates that virtually every Indiana hospital lost money in 2022.

  • Indiana hospitals experienced negative operating income for the first time since the beginning of the pandemic in 2022, losing $72 million.
  • Total operating income for Indiana hospitals fell $1.2 billion below pre-pandemic levels.
  • Hospitals operated on a -2.0% median operating margin last year, declining 22% compared to pre-pandemic levels.
  • Expenses for labor, medical supplies, drugs, and other purchased services rose $3.2 billion during this time due to inflation and other external factors, outpacing revenue.
  • As a result, Indiana hospitals saw significant declines in days cash on hand. In 2022 alone, Indiana hospitals experienced a nearly 20% median decline in their number of days cash on hand compared to 2021.

If all of that weren’t bad enough, hospitals also faced a host of other related challenges including workforce shortages and increased labor costs. This resulted in a nearly $2 billion increase in labor costs compared to pre-pandemic levels. Salary increases for health care workers accounted for 96% of those costs. Also, there was a significant rise in patient length-of-stay that outpaced discharges, further stressing hospital finances.


The Impact by Region

Hospital officials from several Indiana regions each described similar experiences. For example, Kreg Gruber, the CEO Beacon Health System in north central Indiana, said that his organization finished 2022 with a negative operating margin of about 1.1%. That translates to about a $14 million loss – the first loss in their history. Contract labor (also referred to as agency staffing or traveling nurses) was a major cost factor that led to the losses.

“During the peak of the pandemic, we had about 300 agency staff in our hospitals. It’s cost us dearly. We are now no longer relying on agency staff, and we made a conscious decision to pay our nurses more. These are nurses who live and work in our communities. And that’s paid off for us, although it’s raised our operating expense to do that,” Gruber said.

He also explained the volume of patients with commercial insurance has not come back to pre-pandemic levels. The volume of Medicaid and Medicare patients has come back, but those options do not cover the complete cost of care. Because of that change, revenues are substantially down. Gruber explained the hospital’s cash-on-hand has dropped about $200 million dollars for the year.

In southern Indiana, Carol Dozier, CEO of Norton King’s Daughters’ Health, said that her hospital finished 2022 with a negative 12.5% operating margin. Their patient volumes have not returned to pre-pandemic levels, and their costs for things like labor, drugs, and supplies have increased.

These cost increases are echoed by almost every hospital in the country, but Norton King’s Daughters’ Health was also severely impacted by a cyberattack in early 2022 – a threat that’s becoming all too common for hospitals. In this case, the hospital had to replace equipment and had to shut down its billing department for months.

“There are no quick solutions for us,” Dozier said.

Northwest Indiana’s Lauren Trumbo, CFO with Methodist Hospitals, said that about 82% of their patients are on Medicare/Medicaid, which as mentioned does not cover the total cost of treatment. The pandemic exacerbated the existing shortfalls greatly.

Early in 2022, Methodist experienced a “huge” covid wave of inpatient volume, the highest record since the onset of the pandemic. There was also a record number of staff that were quarantined, so the hospital had to suspend elective surgeries and relocate resources to acute care departments.

“With staffing shortages, contract labor expense hit us really hard. In 2022, our contract labor was $31.4 million dollars, compared to 2019 when it was about $2.2 million,” Trumbo said. “Supply expenses also drastically increased, as well as purchased services.”

She said that expenses for the hospital increased by about $75 million in 2022 without any additional revenue. They had an operating margin loss of 4.6%, and days-cash-on-hand dropped by 31%.

“This is unsustainable, and we do have concerns with 2023,” Trumbo said.

Other major concerns for Methodist relate to legislative issues. Trumbo said the Consolidated Appropriations Act of 2021 contained language that altered the definition of Medicaid shortfall for the purposes of calculating payments. She said that will create an “unfavorable $16 million impact to the hospital’s bottom line.” Other state bills on the docket this year will also create further burdens.

“Now is not the time to put additional pressure on hospitals,” she said. “Our communities need access to healthcare. These legislative issues are threatening the sustainability of our hospitals.”

(More info from Methodist Hospitals is available in a Letter to the Editor found here.)

And finally, Alan Fisher, CEO of Woodlawn Hospital located in the north central region, said that 11 (unspecified) hospitals in Indiana are at risk of closing – seven of which are at immediate risk of closing.

“Unfortunately, my hospital is likely one of those at the greatest risk,” said Fisher. “Our operational loss for 2021 was $4.5 million. 2022 had an estimated loss at $6.3 million. Our goal, not a pleasant one, for 2023, is only to lose $1.5 million, and that’s even after we’ve implemented more than $2.5 million in cost reduction.”

“Why are we in this situation?” Fisher asked. He explained that many Hoosiers were able to pick up healthcare coverage during the pandemic through programs like Medicaid and the Health Indiana Plan (HIP), but hospitals have increasingly had to pick up the bill.

“Indiana hospitals will pay a total of $1.5 billion in 2023 into the hospital assessment fee to fund these programs,” Fisher said. “It’s good that we have these programs for so many who do not have insurance, but these increases on our hospitals are not sustainable.

He also explained that commercial insurance providers often send their patients away from rural hospitals to larger urban medical centers. This delays care and makes it difficult for rural hospitals to operate. This has led Woodlawn to consider closing units, leading to care deserts in Indiana.


What Does this Mean for Hoosiers?

The bottom line to all of this is that hospitals are in great need of support in order to continue providing access to care. They’re not sacrificing on their quality of care, but many Hoosiers may find themselves challenged with finding access to care if things progress on this trajectory. For example, wait times could be significantly longer, or people may have to travel long distances for treatment. Without support from legislators and changes to current/proposed legislation, hospitals will be facing dire financial headwinds and Hoosiers in many areas of the state may lose their local access to care.

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Category Features, Finance