Local, national nonprofit medical centers face continuing inflation after pandemic labor issues
Tod Stephens, The Spokesman-Review, Spokane, Wash.
5 min read
Dec. 21—During the heart of the pandemic, hospitals around the country were forced to hire nurses on expensive temporary contracts to meet increased demand.
And, as COVID cases decreased, operational costs soared due to inflation which caused massive operational losses.
But this year, Washington hospitals are seeing their first sign of relief.
Evergreen State hospitals combined for a net-operating income loss of about $746 million in the first six months of the year.
While that hurt, it's not near as bad as the $1.16 billion lost in 2022, according to the Washington State Hospital Association.
The turnaround was accomplished by replacing short-term, agency nurses with full time workers.
And, a bump in the Medicaid allowance starting on Jan. 1 gives Spokane providers, like Providence Health & Services and MultiCare Health System, hope for profitability, sources said.
"Costs are still permanently inflated from what it was pre-pandemic," said Shelby Stokoe, chief financial officer for the Inland Northwest Washington division of Providence Health & Services. "But it is very much leveling out."
MultiCare Health System reported $287 million of losses in 2022 but is projecting $87 million less losses in 2023.
This year, Providence's Inland Northwest service area region lost $133 million in operational costs in the first three quarters, according to Stokoe. That figure should climb to about $170 million by the end of the year.
Last year, that number was $175 million.
According to Stokoe, inflation has added another $60 million of annual losses to the Providence hospitals in the Northwest region since COVID began.
But heading into the new year, she is expecting inflationary losses to be closer to $50 million.
"Pre-pandemic, that number was only $30 to $35 million a year," she said. "In order to cover inflation alone, we had to find twice as much money annually."
Providence has had to work hard to overcome inflation costs. It found an unlikely ally: The government.
Authorized in the 2023-25 state operating budget, healthcare providers will see increased reimbursements rates for Medicaid patients — the first raise of its kind in some 20 years, according to Ariana Barrey, communications manager for Providence.
Currently, Washington state's Medicaid reimbursements cover about 63% of costs on average across all hospitals in the state, Barrey said.
Next year, that number will be around 80%, which would put it at about the same level as Medicare reimbursements.
With around 70% of Providence patients who rely on government assistance, Stokoe is anticipating the raise will equate to roughly $60 million more in revenue a year.
Like many hospitals around the country, Providence laid off administrative workers in 2022 to help stave off loses. Barrey described this as a "flattening" of the organization.
"There used to be a corporate office, then a regional layer and then a service area layer," she said.
But now that regional layer is gone.
"We took out an entire layer of administrative overhead, which has definitely helped us to run leaner and keep as much of our costs as possible in local communities," she said.
According to Kevin Maloney, spokesman for MultiCare's Inland Northwest service area, the medical provider's financial recovery efforts are proving to be effective in reducing losses.
In 2023, the hospital reduced its traveling nurses by 39% compared to the previous year.
"We have continued to shift our recruiting efforts to full-time permanent (registered nurses) to our team and expect that number to continue to fall," Maloney said.
At Providence, 162 external candidates were hired in August of this year alone. Of those, 92 were nurses.
This resulted in major savings for the provider.
On labor costs alone, Providence is saving $1 million more a month during the second half of 2023 compared to the first half, Stokoe said.
Much of the shift to full-time workers was achieved through recruitment and retention efforts.
Maloney said MultiCare keeps its staff by offering competitive wages, robust health and wellness benefits and numerous workplace wellness initiatives.
At Providence, retention tools include "earn-while-you-learn" programs in which it covers the cost of education for specialty nurses and pays them while they receive on-the-job training.
Providence also partners with the Washington State University College of Nursing, to provide the school with registered nurses to instruct classes for its nursing program and is active in local schools to foster an interest in the career.
Nationally, nonprofit hospitals faced some of the same issues as those in Spokane, but profitability is creeping up.
One major ratings firm, Moody's Investors Service, has upgraded its outlook for nonprofit hospitals from negative to stable , pointing to factors like moderating labor costs and higher reimbursements from insurers.
For the roughly 300 nonprofit providers it tracks, the worst seems to be over. But serious challenges remain, and not everyone is ready to call a turnaround.
Both Fitch Ratings and S&P Global Ratings held to their negative outlooks, saying improving revenues aren't making up for higher costs, and both expect downgrades to continue to outpace upgrades.
As local hospitals continue to overcome the lingering strains from COVID, Stokoe said the return to profitability at Providence appears to be close to reality.
Though she emphasized that much can change, Stokoe estimated that hospitals around the Inland Northwest can get their first taste of profit since COVID in about three to five years.
"To get there, we have to continue evolving ways we care for our patients," she said.
