‘Unsustainable’: Hospitals in Washington, nationwide struggle with finances despite ease in COVID-19 patients

OLYMPIA – A study from the Washington State Hospital Association found that hospitals are facing an unprecedented financial crisis – and they’re not alone.

The COVID-19 pandemic, a significant loss in permanent staff and an increase in expenses due to inflation have led to what hospital leaders are calling a “quite grave” situation.

The state’s acute care hospitals, those providing inpatient and outpatient care as well as nursing services, posted $929 million in losses during the first three months of this year. That’s a 13% net loss, which Eric Lewis, chief financial officer for the association, said is unsustainable.

“It’s like nothing I’ve seen in my career,” he said in a news conference last week.

Expenses for hospitals increased by about 11% compared to 2021, but hospitals’ revenues only increased by about 5%, according to the survey. The cost of staff, especially temporary traveling staff, supplies and medications have all contributed to the rising expenses.

All 52 urban hospitals reported negative margins, Lewis said. Eighteen of the 34 independent rural hospitals reported negative margins.

At Providence, the financial situation is “bleak,” said Susan Stacey, chief executive for Providence Inland Northwest Washington. According to their first quarter report to the Department of Health, Providence Sacred Heart Medical Center lost more than $57 million. Holy Family Hospital lost $3.3 million.

“This is the worst state of crisis that I’ve ever seen in our hospitals,” Stacey said.

MultiCare Deaconess Hospital ended the first quarter down more than $5.6 million, according to their report to the Department of Health. MultiCare Valley Hospital finished the first quarter down $1.4 million.

What’s happening in Washington follows a national trend.

“We’re seeing pretty severe financial challenges across the board right now,” said Aaron Wesolowski, vice president for policy research at the American Hospital Association.

The financial pressures are driven by a number of factors, including labor shortages that cause hospitals to rely more on contract labor, and inflation leading to rising costs for medications and supplies.

The COVID-19 pandemic only exacerbated what was already a growing problem, Wesolowski said. Before the pandemic, about a third of hospitals across the country were operating with negative margins and another third were barely breaking even, he said.

How hospitals got here

The financial problems are due to a mixture of what hospitals deem low Medicaid reimbursement rates, a large increase in temporary staff, and higher costs for medication and services.

As staffing shortages continue across hospitals statewide and nationally, hospitals have had to make up for the loss by increasing the number of traveling nurses and staff they use. Traveling nurses and contract staff are now more expensive than permanent staff because demand for them is so high, Wesolowski said.

Temporary labor costs increased by 200% statewide, according to the survey.

At Providence in Spokane and Stevens counties, Stacey said hospitals are spending between $4 million to $5 million more a month on labor than they have in years past. The hospitals are continuing to reduce temporary staff, but there are “just not enough people working in healthcare right now nor is there a long line of people waiting to get in,” she said.

As of June 16, Kootenai Health had 650 open positions, Kootenai Health chief executive Jon Ness wrote in a guest column in the Coeur d’Alene Press. The system normally has 320 open positions at any given time.

Chelene Whiteaker, senior vice president for government affairs at the Washington State Hospital Association, said hospitals cannot get rid of traveling staff right now unless they want to close a significant amount of services.

But if they did, it would only save about 40% of the losses statewide, she said.

“That workforce shortage is severe across the nation, and that’s not unique to Washington, and it’s impacting the fiscal health of the hospitals due to the heavy reliance on travelers or contract nursing,” Ingrid Ulrey, regional director of the U.S. Department of Health and Human Services, told The Spokesman-Review.

Another significant financial burden on hospitals is the rising costs of supplies and medications due to inflation.

A June 2022 report from consulting firm KaufmanHall found that operating costs for hospitals and health care systems across the country were elevated across nearly every metric.

While labor is the most elevated cost, the cost of drugs and supplies were also higher.

Hospitals in Washington have also pointed to issues with overcapacity and not being able to discharge some patients quickly enough.

Ulrey said she wasn’t sure if the fiscal trend was the same in other states, as no other state hospital association had conducted a survey like Washington’s.

However, Ulrey said hospitals across the country have faced high patient counts throughout the pandemic and are continuing to face capacity problems due to difficult-to-discharge patients and deferred care from patients who couldn’t get care during the COVID-19 pandemic.

Last month, hospital leaders called on the state to help with an “unprecedented” capacity crisis. Most hospitals on the West Side are over 100% capacity, and those east of the Cascades are close, hovering around 95%.

The backup is caused by a mixture of lack of staff and available beds and the continued challenge to transition patients into long-term care facilities. The hospital association has continued to call on the state to update its guardianship law, which requires a court-appointed guardian to consent to discharge patients who are unable to consent for themselves and who have no immediate family member to do so for them.

Stacey said the average length of stay is up 25% in the past two years. Patients are sicker, staying longer and filling beds, she said.

Currently, Providence is housing slightly fewer than 100 people who are medically cleared but don’t have a place do go.

Additionally, the hospital association called on the state to fund bed readiness programs statewide, expand rapid response teams for long-term care facilities and increase support for child and adult respite services.

Gov. Jay Inslee said last week that his office wants to help, but this is a long-term issue.

There aren’t enough resources in the system and there aren’t enough staff, he said.

“I don’t have unlimited dollars in my pocket,” he said, adding he was hopeful state legislators would be open to addressing some of the issues.

What’s needed

If hospitals continue to lose money, some could eventually close or curtail many services , Wesolowski said.

“The concern is that with this continued financial pressure, we’ll see access affected,” he said.

Cassie Sauer, president and chief executive officer at the state hospital association, said the financial situation could result in less access to care for patients.

“Hospitals’ ability to sustain health care services, all of the health care services they provide, in the face of a dire financial situation, are in question,” Sauer said.

Ness said health care consumers will likely notice changes in their service. The challenges are complex, and there are no easy solutions, he said.

“In light of these industry and national demographic trends, one thing is clear: Hospitals are going to experience both service and financial challenges,” Ness wrote. “We simply cannot continue to do things the way they have always been done.”

According to the Washington hospital survey, urban hospitals have fully spent their federal COVID-19 relief dollars, and there are no plans for more to come into the state.

Federal funding, such as the Provider Relief Fund that provided payments to hospitals, helped many hospitals during the start of the pandemic, Wesolowski said.

“But it hasn’t covered all of the challenges that hospitals have,” he said.

There were never any dedicated funds to cover the burdens with the delta or omicron variant waves, he said.

“The highest surges that we had, there was no federal relief for those,” Sauer said.

Hospitals still have not fully recovered to where they were pre-pandemic, Wesolowski said, and now the increase in expenses due to inflation has only made the problem worse.

In the near-term, the American Hospital Association is asking for the federal government to keep certain waivers they’ve had in place during the public health emergency and to roll back cuts to Medicare payments, which could cost hospitals at least $3 billion by the end of the year, according to the organization.

Instead of relying on federal funds, the hospital association is looking to the Legislature for more funding.

The Legislature last year allocated more than $38 million to nursing and health care worker education. They also increased rates for vendors providing services to people with developmental disabilities or long-term care needs, and allocated additional funds to support the behavioral health workforce.

But hospital leaders say there’s still more that needs to be done.

S-R reporter Julien Luebbers contributed to this report.