November 6, 2022
I haven’t done the best job covering one of the biggest business stories that is bubbling under – and sometimes under – the surface of this community.
But I’m going to try it today.
The collision of financial factors hitting the healthcare industry is significant. It is not clear when or how it will all end, and the potential implications for this community must be recognised. It’s also a complex and evolving landscape, which can be difficult to capture in a single news story or even a series of them.
But let’s start here. Before a pandemic, most health systems made a margin of 1 percent to 3 percent in any given year. It inflated some with an infusion of aid from the federal government during the worst of the pandemic, but the dollars are gone.
Now, year-to-year, year-to-date, health systems are seeing an inflationary increase of 25 percent to 40 percent.
“There are probably three components here: medical equipment, medical supplies, and then the main staff,” said Tim Rave, president of the South Dakota Association of Health Care Organizations.
“The math doesn’t work. That’s what boils down to what’s going on.”
I was recently fortunate enough to moderate a discussion for the Sioux Falls Development Foundation that included the CEOs of both health systems—Bill Gassen of Sanford Health and Bob Sutton of Avera Health—along with First Premier Bank CEO Dana Dykhouse.
The focus of the event was workforce development, and the conversation included, among other things, some candid discussions about the state of health care.
You can watch it for yourself here – audio starts at 3:58.
“The workforce is across almost every decision we’re making strategically,” Sutton said. “I would tell you (it’s) priority No. 1, without question, right now.”
Here’s the irony that’s essential to understand when trying to understand the landscape: At the same time both systems are preventing some jobs from being filled, reclassifying some and cutting others, they’re trying to hire in areas related to direct patient care.
“On the one hand, we’re right-sizing the organization administratively, and on the other hand, we’re hiring everyone we can to look after people. In the same organization. Same day,” Sutton said. “And if you think we don’t think that’s a mixed message, you’d be wrong. And we struggle with it as leaders too.”
For example, Gassen recently sent an email to all employees in which he told Sanford that he will be “closing programs outside of our core mission and reducing administrative expenses.”
At the same time, he shared that the system has 6,000 open positions.
“We have a unique convergence on some challenges that are happening right now,” he told the panel. “The difficulty with those messages is very challenging because it’s very true that … we’re fully employing 6,000 people. We need 6,000 people. We probably need more than 6,000 people today, mostly in areas where there are patients.”
People, however, come with many costs. At least half of hospital costs relate to personnel.
Now, remember the many times during the pandemic when we reported both health systems making unprecedented investments in their people.
Weeks into the pandemic, Sanford Health waived employees’ health insurance contributions for months and gave most of them one-time cash “stability” payments. A year ago, every Avera Health employee received a share of a $50 million investment in the workforce that included a $17 an hour minimum wage and pay increases of at least $2 an hour per employee.
To me, this all made sense as a way to retain and reward people whose services were vital. However, that is only one view of how personnel-related costs have increased. Pay increases don’t go away; instead, they compound year after year.
The biggest shock, however, was that they had to pay contract staff – nurses and other support positions who worked for outside agencies and traveled around the country filling staffing gaps during the worst of the pandemic . Travel staff had been around for years, but the use – and the cost – had increased. It is not uncommon to pay hundreds of dollars per hour for a travel nurse. Of course, the nurse does not get to keep the full amount, but the pay is greater than what would be received in a more permanent position.
The use has decreased, but these staff members are still needed. How else do you come close to filling thousands of open roles without that?
“You still have your temporary staff, for whom you are paying a premium; Regular staff see that and want more money,” Rave said. “Paying people more is a good thing … but that money has to come from somewhere. It must be a well thought out financial plan. To do that on a year-round flight just triples everyone’s problem.”
So you start with those personnel costs. Then, you layer on medical equipment and supplies that cost more. And the food that patients need. And the fuel needed for vehicles. And the next thing you know, costs are up 25 percent to 40 percent. But unlike some businesses, healthcare cannot easily increase the revenue it brings in to try to break even.
“Hospitals can’t pivot in the middle of the year and change their prices,” Rave said. “Those contracts with insurers and with Medicare and Medicaid, as payers are set by the government, but they don’t pivot during the year either. So you wait until now when negotiating those agreements, or a month ago, and see what you can do for next year.”
But no one expects payments to increase by 25 percent. One health system member who was on another panel I chaired recently estimated maybe 3 percent. As Rave said, the math doesn’t work.
This is also not a unique South Dakota issue. Not even close.
The Minnesota Hospital Association recently released new data that highlights what it calls “deteriorating hospital and health system finances that are being exacerbated by the health care workforce crisis.”
With a nearly 250 percent increase in vacancy rates, a 172 percent decline in year-over-year financials for acute care hospitals, “exponentially rising labor and supply costs, and the need to rely on temporary staff, there is a there. great pressure on the state’s hospitals and health systems,” the organization said.
“Our hospitals and health systems are committed to being there when Minnesotans need them, and they need help as the perfect storm — the financial effects of the pandemic and the workforce shortage — worsens with each passing day,” said Dr. Rahul Koranne, MHA. president and CEO.
The Association’s 2022 MHA Workforce Report is based on a state analysis of MHA members, including large Minnesota health systems and small rural hospitals. Details show:
- The overall vacancy rate is 21 percent this year, compared to 6 percent in 2021.
- More professionals within healthcare are choosing a part-time schedule, making it harder for hospitals and health systems to meet operational needs. For the first time, more than half – 57 per cent – of registered nurses are not working full time.
- Overall, 44 percent of all hospital employees are less than full-time, up from 37 percent in 2016. This trend is higher among select professional groups, including 68 percent of nursing station technicians and 64 percent of certified nursing assistants.
And, at the same time that our Sioux Falls health systems are navigating this environment in terms of personnel, they must always plan for future needs. Think it’s so easy to solve this financial problem without building new buildings? He is not. Population projections and expected demographic needs show that we will not have the capacity to take care of this growing region without continuing to invest in the projects that you see underway today and that I hope – and hope I have – which you would see as early as next year.
“You need the buildings because you know the traffic is going to be coming in, and everybody wants and needs and expects those services to be there,” Rave agreed. “So you have to build the buildings and then try to staff them to take care of that volume.”
What does this mean for us as a community? I think there is a need to recognize the environment healthcare is facing and perhaps some expectations could be adjusted. Many organizations have greatly benefited from the ripple effect and generosity of these two great organizations being such an integral part of the community. But to ensure that they are sustainable and capable of their core mission, which is to provide, deliver care, they are likely to have to make adjustments. I would challenge both businesses and non-profit organizations that receive significant support from the health systems to look inward, including ways to diversify their own client or donor base. And I encourage them to be willing to hire health care workers whose jobs may be disrupted as they look for new opportunities and bring the skills they are looking for.
I have no doubt that there will be health systems that will not come out of this economic period looking at everything as they did when they entered it. Will be merged and even closed. It has already started nationally. It is imperative that Sioux Falls remain the strong locally based health care hub that has helped define our economy for the past two decades or more. Whatever mix of public and private support, adjustment and innovation it takes to achieve it, it will be worth it.