Hospital budgets and balance sheets socked by inflation
3 min read
Chicago-based CommonSpirit Health’s third quarter financial results highlight the persistent strain inflation poses on not-for-profit hospital balance sheets, with cascading effects on borrowing plans and operational strategies.
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“Healthcare needs a ‘makeover’ to align with post-COVID realities as margins remain well below historical norms. Where we are is not sustainable and waiting for things to return to how they used to be is a rapidly decaying option,” wrote author Eric Jordahl, a managing director who directs Kaufman Hall’s treasury & capital markets practice. “The journey of transforming operations is going to require very careful planning about how to size, position, and deploy liquidity, leverage, and investments.”
Borrowing remains down as systems weigh their capital needs against balance sheet and rating impacts and higher borrowing costs amid higher interest rates.
“Healthcare financings that came in the past couple of weeks generally did well,” the report said. “Maturities seemed to do better than put bonds, and it remains important to pay attention to couponing and how best to navigate a challenging yield curve. But these are episodic indicators rather than trends, given that the scale of issuance remains muted.”
The sector’s struggles have led to calls for higher Medicaid hospital reimbursement rate increases for the first time in 28 years in Illinois, but the clock is ticking.
“Illinois hospitals are in dire financial distress with soaring expenses and below-cost Medicaid reimbursement,” the Illinois Health and Hospital Association says.
The state legislature’s regular spring session was slated to end last Friday but has been extended through at least this week with the primary task of passing a fiscal 2024 budget still unfinished.
“Hospitals are struggling to absorb labor and supply chain costs, which have increased upwards of 20%. Those higher costs are now permanently embedded into the cost of providing care,” Illinois Health and Hospital Association President A.J. Wilhelmi and Chicagoland Chamber of Commerce President Jack Lavin wrote in a commentary published in the Chicago Sun-Times Friday.
“Without additional state support to help offset those new costs, hospital leaders say the consequences will be impactful and affect delivery of care,” the group wrote.
Government program reimbursement rates for Medicare and Medicaid, which provide health care coverage for well over half of all patients being cared for at Illinois hospitals, fall short of fully paying for care with Medicaid program reimbursement rates estimated at 80%.
Illinois ranks 48th in Medicaid spending per enrollee, while it’s the single largest insurer in Illinois covering three in 10 individuals compared to one in 10 in 1995. Senate Bill 1763 would provide a 20% across-the-board increase to Medicaid base rates.
The Illinois Primary Health Care Association is advocating for increased funding Medicaid payment rates for patients’ medical, dental, and behavioral health needs in Senate Bill 1888 and House Bill 2298. Half of the estimated $100 million cost would be borne by the federal government, the group said.
At CommonSpirit, the system’s widely publicized cybersecurity breach last October also dragged down results for the fiscal year with a $160 million price tag so far. Loanzon said the system expects to recoup much of the loss from insurance.
The system benefited from overall strong volume growth with admissions up 9% over last year, but a decline in revenue per adjusted admission and continued rising costs and labor shortages made their dent. Supply side expenses did improve from the same time which the system attributed to various initiatives.
