Labor, supply, energy costs up at Washington hospitals, including PeaceHealth

Washington hospitals, including PeaceHealth, reported continued financial challenges in the first half of 2022, following record losses earlier this year.

In its second financial survey of hospitals this year, the Washington State Hospital Association found escalating costs driven by longer patient stays and wage increases, as other inflation-related cost increases continue to exceed revenue and insurance reimbursement rates.

"The results are clear and incredibly concerning," said Cassie Sauer, association CEO. "What we see is that hospitals in Washington state continue to face an unsustainable financial situation. The financial losses our hospitals are experiencing continue to be enormous, and revenues simply are not keeping up with rapidly escalating costs. Our biggest concern here is it's putting patient care at risk in many communities across the state and jeopardizing patients' ability to get care they need."

Hospitals representing 97% of acute care beds in the state responded to the survey, according to the hospital association. From the first half of 2021 to 2022, the hospitals recorded a 4% increase in operating revenue and a 11% increase in operating expenses, the survey found. Combined with investment losses, the hospitals saw a total margin of negative 12%, or loss of $1.75 billion in the first six months of 2022.

Losses are expected to continue throughout the rest of the year and into 2023, said Eric Lewis, chief financial officer.

While some hospitals have instituted larger closures or service reductions, most facilities have reported a "slow drip" in loss of services and surgeries, Sauer said.

"Around the state, hospitals are definitely pulling services out," she said. "What we've seen a lot happen is hospitals taking one or two beds out of each unit so their overall bed capacity is less."

Cost increases were driven by labor, energy, supplies and pharmaceuticals, Lewis said. Overall, employee wages and benefits increased 9% from 2021 to 2022, according to the survey. Temporary staff costs increased more dramatically in the second quarter of 2022, jumping 235% from 2021, hospitals reported.

PeaceHealth saw a 22% increase in the hospital supply and pharmaceutical costs from fiscal year 2019 to 2022, according to the organization. The system has cut back on temporary workers and is trying to attract new staff and retain current employees, said Michelle Gisby, PeaceHealth spokeswoman.

Daily inpatient census remains high across all PeaceHealth locations and the hospitals are seeing sicker patients who are often staying at the hospital longer, Gisby said.

"We have improved our processes for getting patients back home safely and more quickly and are meeting patient demand without disruption," she said. "More work is needed for us to be able to care for all of those who may have delayed care during the pandemic."

PeaceHealth St. John and other hospitals have reported increased use of the emergency department. During the Tuesday press briefing, several hospitals reported increases ranging from 10% to 16% in emergency room usage over the last year.

Emergency rooms are also crowded because of patients "boarding" there as they wait for a bed on a medical floor, said Mike Marsh, CEO of Overlake Medical Center in Bellevue.

Other financial burdens include patients staying longer because they need more complex care or because of difficulty discharging them. Insurance reimbursements don't cover most of those costs, hospital officials said.

Marsh said more than 50% of Overlake's payments are from Medicare and Medicaid, and those rates can't be negotiated. The Medicare rates pay about 85% of costs and Medicaid rates cover about 65%, he said.

A state agency sets Medicaid payment rates for specific services, and the rates are usually different than the price set by the hospital and the cost to the hospital for providing the service, according to the Kaiser Family Foundation.

The hospital association has a "laundry list" of requests for the Legislature, including increasing Medicaid reimbursement rates, which haven't risen for urban hospitals in 20 years, said Chelene Whiteaker, hospital association senior vice president for governmental affairs. The association plans to ask for a $1 million per year increase, which won't cover all the losses but will make a difference, Whiteaker said.