As federal COVID-19 pandemic aid funding rolls off the balance sheets of hospitals nationwide some experts argue that the old financial models won’t work anymore — even as patients return for health care in person.
Most nonprofit hospitals in the Philadelphia region have struggled financially in the past three years — now the second-largest employer in the city is still in the red and has already laid off hundreds this year.
For example, Jefferson Health posted a financial loss from operations for the second year in a row. Excluding one-time revenue totaling $153 million from selling off equity stakes in business ventures, the losses widened over the past 12 months to $231 million.
Jefferson Health saw a $78.5 million loss from operations for the fiscal year ending June 30, according to financial documents shared with bondholders. That’s an improvement from $125.8 million in the red in June 2022.
In the past 12 months, the organization generated $25 million in revenue from a 51% stake in the Delaware Valley Accountable Care Organization, $108 million from the sale of its laboratory outreach testing business, and $19.7 million from a non-controlling interest in its mammography business.
Much of Jefferson Health’s revenue has increased due to its string of mergers. The health care organization merged with Abington Health, Aria Health, Philadelphia University, Kennedy Health, Magee Rehabilitation, and Einstein Health Network between 2015 and 2021. In fiscal year 2020, revenue hit $5.2 billion which increased to $5.6 billion in fiscal 2021 and $8 billion in fiscal 2022. As of June 30, revenue has reached $9.7 billion.
But costs are outpacing revenue growth at the organization.
An inspirational banner hangs inside the Center City Philadelphia Thomas Jefferson Univeristy Hospital as COVID-10 pandemic relief funds run low. (Kristen Mosbrucker-Garza/WHYY)
Consultant David Johnson, CEO of 4Sight Health, says that hospitals in general are fighting an uphill battle and the strategy of simply growing revenue without eliminating waste and reducing expenses isn’t sustainable.
“It’s forcing hospitals to try and become more efficient to try and get ahead of the curve. It’s just they aren’t terribly agile,” Johnson said. “So they are in this challenging position of having a business model that has fundamentally low margins to begin with and they are seeing dramatic increases in their expenses without commensurate increases in their revenues because they haven’t been able to push through the higher prices in the way they historically have. We’re seeing a lot of pressure, a lot of red ink.”
The cost of labor at Jefferson Health has steadily grown in both cost and by adding many more employees in recent years which has grown to 42,000 workers. In fiscal 2021 salaries and wages totaled $2.5 billion which grew to $3.3 billion in fiscal 2022, then $3.7 billion in fiscal 2023.
Overall salary costs were over budget by $71 million for fiscal 2023. But temporary staffing costs of $92 million “significantly impacted operating revenue.”
Consultant Johnson argued that there’s much more need for primary care, behavioral health, and chronic disease management — not specialty services and more surgeries – which can be cash cows for operations for most hospitals. But growing specialty care is still the strategy for most hospitals, he said.
“They’ve continued to operate under the old model, push prices as high as possible, move facilities to the extent possible into higher paying affluent regions so they get paid more money for doing the same old stuff,” he said. “The dirty little secret about the healthcare industry is that a ridiculous amount of energy goes into figuring out ‘how do I optimize the amount of revenue that flows into the system?”
It’s been almost a year since the new CEO of Jefferson Health, Dr. Joseph G. Cacchione took the lead of the organization that operates 18 hospitals across southeastern Pennsylvania and South Jersey. Jefferson Health declined an interview request for this story with Dr. Cacchione and submitted a statement.
“Jefferson is a strong healthcare organization and well-positioned to continue to grow and deliver on our vision to reimagine health, education, and discovery. We will continue to evaluate opportunities to improve healthcare delivery in the communities we serve and constantly 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.”