As federal COVID-19 pandemic relief funds drain off the balance sheets of hospitals across the country, some experts argue that old financial models will no longer work — even if patients return to in-person health care.
majority of Nonprofit Hospitals in the Philadelphia Area passed struggled financially in the past three years Now the city’s second largest employer is still under threat and has already laid off hundreds of people this year.
For example, Jefferson Health reported a financial loss from operations for the second year in a row. Losses have widened to $231 million over the past 12 months, excluding a total of $153 million in one-time revenue from selling equity stakes in business ventures.
Jefferson Health lost $78.5 million from operations for the fiscal year ended June 30. according to financial documents shared with bondholders, This is an improvement from a decline of $125.8 million in June 2022.
Over the past 12 months, the organization generated $25 million in revenue from a 51% stake in Delaware Valley Accountable Care Organization, $108 million from the sale of its laboratory outreach testing business, and $19.7 million from its non-controlling interest in mammography . Business.
Much of Jefferson Health’s revenue has grown due to its mergers. The health care organization merged with Abington Health, Area Health, Philadelphia University, Kennedy Health, Magee Rehabilitation, and Einstein Health Network between 2015 and 2021. In fiscal year 2020, revenue reached $5.2 billion, rising to $5.6 billion in fiscal year 2021. $8 billion in fiscal year 2022, As of June 30, revenue has reached $9.7 billion.
But the costs are outpacing the revenue growth in the organization.
Consultant David Johnson, CEO of 4Sight Health, says hospitals in general are fighting an uphill battle and a strategy of simply increasing revenue without eliminating waste and reducing expenses is not sustainable.
“It is forcing hospitals to become more efficient to try and get ahead of the curve. It’s just that they’re not agile enough,” Johnson said. “So they are in the challenging position of a business model that has fundamentally low margins to begin with and they are seeing a dramatic increase in their expenses without an increase in their revenue because they are unable to pass on higher prices. aren’t able to the way they have historically. We’re seeing a lot of pressure, a lot of red ink.”
Labor costs at Jefferson Health have risen steadily, adding many more employees in recent years to a total of 42,000 workers. Salaries and wages totaled $2.5 billion in fiscal year 2021, rising to $3.3 billion in fiscal year 2022, then $3.7 billion in fiscal year 2023.
The total salary cost for FY 2023 was $71 million over budget. But temporary staffing costs of $92 million “had a significant impact on operating revenue.”
Consultant Johnson argued that there is a much greater need for primary care, behavioral health and chronic disease management – not specialized services and more surgery – that could be a cash cow for most hospitals to operate. But increasing specialty care is still the strategy for most hospitals, he said.
“They have continued to operate under the old model, jacking up prices as high as possible, moving facilities as much as possible to high-paying affluent areas so that they get more money for doing the same old work,” he added. ” “The dirty little secret about the healthcare industry is that a ridiculous amount of energy is spent figuring out ‘how do I optimize the amount of revenue that flows into the system?’
It’s been almost a year since Jefferson Health’s new CEO, Dr. Joseph G. Cacchione led the organization that operates 18 hospitals in southeastern Pennsylvania and South Jersey. Jefferson Health declined a request to interview Dr. Cacchione for this story and offered a statement.
“Jefferson is a strong healthcare organization and is well positioned to develop and deliver on our vision to reimagine health, education and discovery. We will continue to evaluate opportunities to improve health care delivery in the communities we serve and continually improve operational efficiency and excellence, according to the statement. “We are the only health system in the region that has its own insurance plan, which helps us focus on serving Medicare and Medicaid populations in unique ways.”