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by: Bridget Bennett
Posted:
Updated:
by: Bridget Bennett
Posted:
Updated:
SIOUX FALLS, S.D. (KELO) –Last month Sanford Health’s CEO sent a letter to employees, announcing layoffs at the organization, largely in leadership and non-clinical roles. Similar staffing changes are also happening at Avera Health Systems, but it’s not just a south Dakota problem.
Hospitals and Health systems across the country are working to cut costs.
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“Inflation is not odd in the U.S. economy, two or three percent is perfectly reasonable. But six or eight percent inflation is not what we consider reasonable,” Joseph Santos, the director of the SDSU Ness School of Management and Economics said.
From groceries to gas, car repairs and coffee shops, the cost of just about everything has been uncomfortably increasing all year.
“Any of us that have gone to a fast-food restaurant lately know, what used to cost six dollars probably costs nearly twelve dollars today,” Tim Rave, the president & CEO of the South Dakota Association of Healthcare Organizations (SDAHO) said.
“You need more money to buy it, no matter what it is,” Santos said.
That includes the supplies and services health care organizations need to operate.
“We have a lot of equipment here at the hospital, they’re all managed by vendors that maintain it and they’ve all gone up at least 10 percent since the start of the year,” Brookings Health Sytems Chief Financial Officer Melissa Wagner said.
From syringes to PPE, hospitals like the Brookings Health System are dealing with inflated costs of supplies, but the pressure of the labor market is their greatest increased expense.
“We have had to supplement with traveling nurses and temporary staffing just like everyone else, that’s a huge increased cost to the organization,” Wagner said.
“Not unlike anyone else in business right now, it’s tough to find workers. The problem is in health care, you have to have somebody there to take care of the sick people,” Tim, Rave President and CEO of the South Dakota Association of Health Care Organizations said.
Rave says these issues are not unique to South Dakota.
“Everyone across the country, not only facing this problem, many are in worse shape than we are.
Rave says many health care expenses have increased significantly more than the average six to eight percent inflation.
“Hospitals have seen year to date, about a 25 to 40 percent inflationary increase in expenses,” Rave said.
“This is just a reality of inflation working its way through an economy in very uneven ways,” Santos said. “We say it’s six percent in the average price level, but the reality is, some goods and services are rising by a lot more, some aren’t rising at all.”
Some expenses that have stayed stagnant throughout the year of rising inflation are insurance premiums and co-pays.
“It all comes down to the negotiated rates set with our government payers, as well as our commercial payers,” Wagner said.
Those contracted rates generally last at least a year, which means, unlike other businesses, hospitals haven’t been able to adjust their prices to compensate for their rising expenses.
“Starbucks can add a dollar to their latte if that’s what they need to do to cover their costs, we just can’t do that here in health care,” Wagner said.
“Hospitals do not have that luxury, because those agreements that they make with insurers and with the federal government for reimbursement, those are set on a year-to-year basis, they don’t change on the fly,” Rave said.
“They don’t have the power to set prices in a meaningful way, but yet their costs continue to rise so now they end up in a very tight situation,” Santos said.
Economists like Santos say in the business world, this kind of financial squeeze can become so strong, a company simply can’t function any longer.
“It’s not a sustainable model because what it means at the end of the day is that you’re operating at a loss, and that’s not a position you can be in for a very long time,” Santos said.
A report released by the American Hospital Association this September shows hospitals are facing billions of dollars in losses in 2022, with more than half of the hospitals in the U.S. operating with negative margins the rest of the year.
“In a hospital, generally year to year they make between a one and three percent margin,” Rave said. “With expenses increases at 25 percent, certainly not up to 40, that is not sustainable.”
“We’ve had that increase in volume to help offset those costs so we’ve been able to have a margin, which is great,” Wagner said.
The Brookings Health Systems says they are feeling the financial pressures of inflation, but so far, have been able to keep up thanks to a 31 percent increase in patients since 2019. Like many health care providers, they’re hopeful newly negotiated contracts in the new year will help, but they know it won’t fully solve the problems facing the industry.
“Those insurances are also only willing to negotiate so much,” Wagner said.
That uncertainty is why many health care organizations are doing everything they can to cut costs.
“If you’re trying to drive out costs, you look to the places where you can drive out costs and still provide the essential services,” Santos said.
Santos says it’s likely why Avera and Sanford are cutting administrative or other jobs that aren’t directly related to providing health care.
“We don’t have multilayers of management,” Wagner said. “We have a lot of working directors who are on the floor working alongside their staff.”
It’s another reason Brookings Health System says they’re in a better financial situation right now, but like every health care provider, they’re concerned about the future.
“We can’t fail, we need to provide this service to our community, and our bigger systems can’t fail, because there are tertiary facilities that take care of the sicker and more specialized care that if we don’t have our residents and our patients would have to travel further to receive those specialized services,” Wagner said.
“Wherever someone is sick, ill or injured, they need to have access to health care,” Rave said. “It is scary times; we have to make sure we’re making the right choices to keep access for every South Dakotan open across the state.”
Federal funds helped support health systems through the height of the pandemic, but now that financial aid is over. Santos says if the financial strain on the health care industry counties into 2023, it will likely take some kind of federal legislation or intervention to make sure this essential service continues throughout the country.
KELOLAND News reached out to Sanford and Avera Health for their input on this story; both health systems declined an interview.
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