Philly-area health systems took a big financial hit from COVID surge last year

The University of Pennsylvania Health System typically spends $9 million to $10 million a quarter on overtime, agency staff, and bonus pay encouraging workers to take extra shifts, a health system executive said this month.

But those costs reached an astounding $49 million, a five-fold increase, in the last three months of 2021, capped by the onset of the omicron surge.

“Our costs at the bedside have just gone up and they’re not going down,” the health system’s chief financial officer, Keith Kasper, told University of Pennsylvania trustees during a budget committee meeting March 3. He said the system has to adjust.

Penn, which also saw extra costs in ramping up staffing for its new 504-bed Pavilion tower, still managed an operating profit of $152.5 million in the six months ended Dec. 31. But that was $200 million less than its operating profit in the second half of 2020, when Penn and other health systems had recovered somewhat from the initial shock of COVID-19.

Penn’s results offered a glimpse at the financial pressures the region’s health systems were under late last year. Besides sharply higher costs for staffing and supplies, hospitals also lost revenue from canceled surgeries that weren’t urgent during what is normally a busy time for such procedures.

Many nurses and hospital staff also have contended with harrowing work conditions during the first two years of the pandemic, persuading many to leave the field or find work away from COVID-19′s front lines. So some hospitals have boosted pay for nurses who have stuck it out, hoping they won’t follow colleagues out the door. Hospitals also are paying big buck to fill important gaps. The Temple health system was offering $20,000 sign-on bonuses last fall for experienced ER nurses.

The financial pain to cover all that was felt across the country, according to Kaufman Hall, a Chicago consulting firm that compiles monthly numbers from more than 900 hospitals.

“Hospitals and health systems nationwide closed the second year of the pandemic caught in a vise of rising volumes and ballooning expenses, as COVID-19 cases climbed to new highs and critical labor shortages and supply chain issues continued to plague providers,” said Erik Swanson, a Kaufman Hall senior vice president of data and analytics, in the firm’s National Hospital Flash Report for December.

The new year got off to an even worse start. In a subsequent report, Swanson described January as “a devastating month for hospitals and health systems nationwide hit full force by omicron’s tidal wave.”

Now, some observers are warning that a fifth COVID wave could be coming as soon as April, battering health system finances yet again.

Already, in the six months ended Dec. 31, only three of nine Philadelphia-area hospital operators that have reported comparable financial results — Penn, Children’s Hospital of Philadelphia, and Temple University Health System — were profitable if pandemic aid from the government were excluded, an Inquirer review of financial statements found.

Thomas Jefferson University, the parent of Jefferson Health, which has amassed a system of 18 hospitals since 2015, eked out a small profit of $37 million thanks to $71 million in aid.

Those four systems also happen to be the largest in the region by revenue. Not included in the analysis were three South Jersey systems, Cooper University Health Care, Inspira Health, and Virtua Health, because their quarterly results do not include all of their businesses.

Tower Health, Main Line Health, Redeemer Health, Doylestown Health, and Grand View Health — all had operating losses in the six months ended Dec. 31.

For-profit Crozer Health and Prime Healthcare Services Inc., which owns or manages Lower Bucks, Roxborough Memorial, and Suburban Community Hospitals, do not publish financial results.

High costs for travel nurses — a form of temporary staffing involving nurses who move around the country for stints — were a significant factor in the financial challenges at hospitals.

Nationwide, demand for travel nurses employed by AMN Healthcare Services Inc., a large medical staffing firm based in Coppell, Texas, jumped by 2½ times between last year’s second quarter and the end of the year, the company said.

Average pay for travel nurses soared to $3,290 a week in December 2021 from $1,706 in December 2019, the Wall Street Journal reported, citing data from Vivian Health, an online health-care jobs marketplace.

But there are signs of declining demand locally. As the omicron wave of infections slowed, the need for travel nurses waned at Temple, CEO Mike Young told investment analysts last month. “We’re down from 180 to 150 in the number we’re using,” Young said on Feb. 25. Temple employed about 2,400 registered nurses on Dec. 31, according to a bond offering statement.

During the same call, Young said that turnover among nurses with one to three years of experience was a problem at Temple’s Fox Chase Cancer Center, so those nurses were given “a 15% increase all in.”

The average raise there was 4% because nurses with 15 years or more experience “were already very competitive in the marketplace,” Young said. Temple declined to say whether the 15% increase went exclusively to wages or included other costs.

Pay and benefits for nurses and other staff — which account for half the cost of running a hospital, Moody’s Investment Service said — were not the only expense to outpace revenue increases. Supply prices also rose sharply, and are not expected to go back down, said Jack Lynch, chief executive of Main Line Health, which had an operating loss of $7 million in the first half of fiscal 2022.

Main Line’s financial report shows that supply expenses climbed 16% in the six months ended Dec. 31, compared with the same period of 2020. By comparison, patient revenue rose only 11%.

“We’re not different than any other industry, except we can’t decide not to buy stuff,” Lynch said. ”We still need all of the supplies, probably more of them.”

And all this is happening without increases in payments from insurers, he added.