By: Craig Dolan and Heather Easterling
Read time: 3 minutes
Financial challenges facing health systems, plus solutions.
Lost revenues from pandemic shutdowns and labor and supply chain shortages are causing health systems to feel financial impacts in a significant way. In fact, Kaufman Hall projected that hospitals nationwide lost an estimated $54 billion in net income over the course of 2021.
Here are some of the primary financial pressures health systems are currently facing. Fortunately, for many of the challenges, there are positive solutions and opportunities.
1. Lost revenue from patients avoiding visits and elective surgeries
Many hospitals are still struggling to recuperate revenues lost largely driven by patients avoiding visits and elective surgeries due to COVID-19. Nationwide, hospitals lost $1.53 billion from missed elective pediatric procedures alone between March-May 2020, according to recent studies.
As COVID-19 continues to impact patients, some hospitals are again triaging cases and delaying selected operations, costing hospitals much-needed revenues. The good news is that data suggests that U.S. hospital patient volumes are moving back toward 2019 levels. Outpatient and procedural volumes were 3-4% above 2019 levels in July 2021. Experts expect volumes to be 6-8% higher in 2022. Health systems are also ramping up for the extra care needed for more infirmed patients who delayed basic care during the pandemic.
2. Labor shortage impact on staffing costs
Hospitals are paying $24 billion more per year for clinical labor than they did pre-pandemic.1 Data shows that overtime and agency staff are also driving up labor costs – typically adding 50% or more to an employee’s normal hourly rate. Increased use of sick time and higher rates of turnover are providing additional stressors. The combined stressors of working more hours while under the constant threat of COVID-19 exposure are pushing many hospital workers to the breaking point.
3. Shortages of medical supplies and pharmaceuticals
International supply chain hurdles are contributing to shortages of medical supplies and pharmaceuticals. CME, a distributor of medical equipment that handles over 2 million products, closely monitors its 100 largest suppliers. CME has seen prices on items from those companies increase from 3% to 20% since the start of the year, depending on the item. Some distributors have increased prices on products three times during 2021. Normally, price increases occur just once at the start of the year.
Because 75-80% of pharmaceutical ingredients come from India and China, an interruption to this centralized source of supply can cause issues across the entire supply chain. Managing and procuring alternative pharmaceutical supplies requires an estimated 9 million additional hours of labor per year, which costs health centers across the U.S. an estimated $500 million annually.
4. Increasing drug prices, medication availability
Hospitals continue to cope with increasing drug prices while figuring out how to mitigate those costs. As drug prices continue to rise, they have continued to place the burden on healthcare facilities that must have these medications on hand for patients. About two-thirds of hospital drug costs derive from products either dispensed by a hospital outpatient pharmacy or administered in a hospital outpatient department. The remaining one-third of spending is for drugs used in an inpatient setting. In addition, wages, benefits and hired personnel services account for about 75% of a typical hospital’s operating expenses. Specifically, for the rising cost of oncology drugs, more health systems are considering the increasing use of biosimilar therapies.
As biosimilar adoption rates increase, there’s some opportunity to decrease expenses with no clinical risk as an additional avenue to deliver cost-effective patient care services.
Ensuring that reimbursement covers the increase supply costs is important for health systems’ financial stability.
5. 340B program manufacturers
The 340B Drug Pricing Program continues to face pressure from manufacturers, putting 340B contract pharmacy revenues at risk unless the government intervenes. At the time of this publication, 14 manufacturers have limited “ship to” 340B sales to retail pharmacies. There is also a Supreme Court case involving a dispute between the hospital industry and the federal government over Medicare reimbursement cuts to 340B-qualified hospitals. As such, 340B hospitals are looking to recapture the lost sales by growing their owned retail and specialty pharmacies. They are also considering claims-data sharing options.
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