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Why We Must Dig Deep...

Christin Deacon

 







As hospital associations around the country continue to raise alarm bells on their financial conditions with an expectation of continued government assistance, it is incumbent upon those holding the American taxpayers’ purse strings to dig deeper than the Kauffman Hall Hospital Report. As always, I will preface this sentiment by pointing out that the financial crisis facing many rural hospitals is real, and the labor challenges are mighty. It is ironic that these very serious issues are being taken advantage of to expand and consolidate, and self-made crises, respectively.


Consider Chicago-based Common Spirit health system, who on November 16th reported a net loss of $397 million for its fiscal year 2023 first quarter, including 5.1% increase in labor costs. This is the headline that the organizations want you to see. Read further and note that a $517 million investment loss in the quarter was the primary driver.


Advocate Aurora has also been on the circuit talking up its financial condition – as it works to finalize a mega-merger – pointing out non-operating losses of close to a billion dollars for the nine months ending September 2022, as compared to a positive operating income of over $1B for the same period in 2021 (net change of over $2B). Deep in their own financial statements the system notes that a majority of the losses are “due primarily to decreased investment yields in 2022.” Consolidated Financial Statement


“Trinity Health notched a $148.5 million operating loss (-0.7% operating margin) and an overall deficit of $1.4 billion for the fiscal year ended June 30, according to financial documents released [October 2022].” (Muoio). Trinity points to alarming figures like the $345.4 million (123%) more it spent on contract labor and $55.1 million (1.6%) on its supplies. But what else is driving these losses: $1B in investment losses and $150.2M in equity losses of affiliates.


Ascension Health closed its 2022 fiscal year with an $879.1 million operating loss and net loss of more than $1.8 billion, according to investor disclosures for the period ended June 30.


As policy makers in Washington and across state capitals begin to grapple with the crippling costs of healthcare, against a backdrop of inflation and recessionary times, understanding the financial condition of hospitals is imperative. And I do not mean a snapshot of their year over year revenue losses, or increased labor costs, this requires a willingness to dip deep into the financials and question the easy narrative.


When I was career law clerk working for a Federal Bankruptcy Judge that had a heavy consumer docket in 2008, we saw many unfortunate individuals that were “forced to file” due to their inability to meet their financial obligations. Many of these individuals would seek permission to keep their expensive cars, 5k+ square foot homes, and shield other valuable assets from liquidation. These individuals were very much “IN THE RED” as they spent lavishly on homes, luxury goods, etc., when times were good – there was no disputing the numbers… their balance sheets did not look good and they needed help. And so they came to the courthouse to reorganize some debts, shed many others, and reaffirm obligations to certain creditors.


I find several striking similarities to the current situation faced by many hospital systems that have spent lavishly on executive compensation, capital expenditure projects, and massive expansions through building and acquisitions. Like the consumer debtor that should have been saving when times were good, investing in a manner to sustain long term financial health, and preparing for the inevitable market turn – hospitals should have been investing in wages of nurses and staff, making measured and prudent investments in capital expenditure projects and readying their entities for resilience in what we know will be a challenging future state.


One might forgive a young construction company owner for being caught up in the madness of the housing market prior to the Great Recession and overextending him or herself with mortgages and other unwise (in hindsight) investments. But I cannot give sophisticated hospital systems such leeway – nor should our elected leaders.


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