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Iowa hospitals chart big dip in margins as operating costs skyrocket


Far from being fiscally on the mend from the pandemic, many Iowa hospitals are continuing to experience financial pain into 2022. Iowa hospitals have collectively amassed $101 million in operating losses in the first two months of 2022, according to data compiled by the Iowa Hospital Association. The association represents 118 member hospitals in Iowa.

“We’ve been hearing from our members that things have gotten troublesome financially,” said Chris Mitchell, president of the Iowa Hospital Association. The Business Record spoke to Mitchell on Monday; this week, he’ll be meeting with congressional leaders in Washington, D.C., during the Greater Des Moines Partnership’s annual DMDC trip.

The American Hospital Association recently released a report detailing some of the factors driving higher costs for hospitals nationally. Those include:

  • Hospital employment is down approximately 100,000 from pre-pandemic levels, according to Bureau of Labor Statistics data. At the same time, labor expenses per patient increased 19.1% through 2021 compared with 2019 levels.
  • Median hospital drug expenses by the end of 2021 were 28.2% higher than pre-pandemic levels through the end of 2019 and 36.9% higher per patient.
  • Overall, supply expenses for hospitals were 15.9% higher by the end of 2021 compared with the end of 2019 and 20.6% higher per patient.

The IHA, along with the American Hospital Association, has been lobbying Congress to extend a moratorium that had temporarily suspended a 2% cut to Medicare reimbursements since May 1, 2020, due to the pandemic. Because the moratorium has not been extended, on April 1 the Medicare reimbursements to hospitals were reduced nationally by 1% and will revert back to a full 2% reduction on July 1 unless Congress acts.

The Iowa Hospital Association estimates that without a continuation of the moratorium, Iowa hospitals will incur an additional $31.3 million in operating losses by the end of 2022.

The current operating margin across all Iowa hospitals is averaging a negative 4%, which if investment returns are added in, worsens to about a negative 11% operating margin, Mitchell said. “When you extrapolate that over 12 months, that’s a very scary proposition.”  

In late 2020, the Iowa Hospital Association conducted a COVID-19 impact study that tallied a statewide loss of $1.25 billion across Iowa hospitals, which after netting out federal relief payments still came to a net $433 million loss from the outset of the pandemic in March 2020 through the end of that year. Those losses were largely driven by losses in revenue from double-digit declines in outpatient and inpatient surgeries and other procedures.

In comparison, the losses in the first quarter of this year for hospitals are driven largely by higher costs.

Compared with the first two months of 2021, payroll and benefits expenses for Iowa hospitals have increased by 19.7%, and the cost of supplies has risen by 10.8% year-over-year, according to a summary of the data provided by the IHA. The higher costs are causing a more than 25% increase in operating expense per inpatient stay compared with a year ago.  

Contract staffing costs for personnel, particularly nurses, has surged as hospitals have brought in out-of-state nurses to fill vacancies by personnel who have left health care.

Contract nurse staffing costs for Iowa hospitals collectively reached nearly $26.4 million in November 2021, according to the latest data available provided by the Iowa Hospital Association. That figure is $21 million higher than the statewide contract nursing cost of $5.3 million in November 2019, before the pandemic reached the United States. Monthly contract nursing costs increased by 68% from August through November last year.

Broadlawns Medical Center in Des Moines is seeing unprecedented spikes in operating costs, largely driven by contract nursing costs, which can run as high as $200 hourly for an intensive care nurse, said Karl Vilums, Broadlawns’ chief financial officer.

The higher costs have put the hospital $3.5 million over budget for contract labor alone this fiscal year. That prompted Broadlawns to raise salaries across the board by 3% in December to better compete with other local health systems offering incentives. .

“We were humming along kind of normal, I would say, up to August [2021], and then in September we started seeing the increase in COVID numbers,” Vilums said. “Along with it, we started seeing a lot of pressure on the labor side. Here in the metro, for a nurse to jump ship and go to another system or whatever is pretty easy.” Staffing shortages primarily hit the nursing positions, but some respiratory therapy, laboratory and radiology positions were also affected, he said.

Between September and February, Broadlawns was operating with its inpatient beds filled to capacity every single day, Vilums said, which required contract labor to fill the staffing gaps.

“Historically, our expenses were pretty stable and you could really project them pretty well and come in pretty close from a budget standpoint. This year — I’ve never seen anything like it. We budgeted a 5% expense increase between last year and this year, and we’re hitting about 11%. From a revenue standpoint, our revenues have increased by 4%. So you can tell that combination’s not necessarily a good one.”

While COVID cases have dropped since March, Broadlawns has scaled back expectations for the coming fiscal year in anticipation of potential future COVID surges.

“We did anticipate some of this in the budget,” he said. “We typically budgeted around a 5% margin; next year [the fiscal year begins July 1], we’re anticipating a 1.5% margin. So we kind of have this in our planning and I feel pretty confident we can deal with it.”

While there are no specific state-level relief measures on the table, Mitchell said that Gov. Kim Reynolds’ move to use federal funds provided to the state to send 100 contract nurses and respiratory therapists to hospitals across the state in late December through the surge was “very helpful, and we continue to have conversations with her and her leadership about other potential support or relief for hospitals.”

“We’re looking at a difficult financial proposition, and hospitals, unlike other industries, we don’t have a lot of levers to pull here,” he said. “I mean, for the most part, we get paid what we get paid. And so some of the difficult conversations folks are having around the state is, how do we manage this? Do we hire less travelers? Do we think about offering less services? Do we not expand needed services in the community, like behavioral health? We’re just hopeful that our friends in Des Moines, in Washington, D.C., understand the worry that hospitals have right now and will help us get through this.”

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