System’s patient revenue dropped by $50 million compared to fall 2019
JOHNSON CITY, Tenn. (WJHL) – As Ballad Health nurses and other front line workers wore themselves to a frazzle during the fall 2019 COVID surge, the system’s finances were bleeding red ink. Decreased patient volumes apart from COVID were the main driver.
In a report submitted to bondholders Friday for October-December — the second quarter of its fiscal year — Ballad showed a $21.6 million operating loss before several non-standard expenses and receipts. That compared to an $11.1 million gain in the second quarter of fiscal 2020 a year earlier.
“We knew we were going to have a financially difficult quarter, and it’ll bleed over into the first quarter (January-March) as well,” Ballad CEO Alan Levine said.
“Obviously we’re not where we want to be but frankly I’ve compared us to a lot of our peer systems and we’re right about in the middle.”
For the first six months of the fiscal year, Ballad is $2.9 million in the red before non-standard expenses and revenues. Those include the implementation of its EPIC electronic health record, as well as $33 million in incremental expenses associated with COVID and a nearly offsetting $28 million in relief funds.
Bottom line: Compared to a $12.4 million profit between July and December of 2019, Ballad experienced a $30.4 million loss for the first half of fiscal 2021.
Causes: The patients they had and the ones they didn’t
Largely due to people deferring elective care — from surgeries to simple outpatient visits — the hospital system saw its October-December net patient revenue drop by $51 million (10 percent) from the year before — from $536 million to $486 million. Ballad itself made the call to cease offering elective surgeries as COVID numbers climbed.
Particularly with COVID filling its ICUs, Ballad wasn’t able to pare expenses nearly enough to match that lost revenue.
“It’s ironic because there’s people out there who apparently think hospitals are trying to make money on COVID and that’s not the case ,” Levine said. “I mean it is a huge money drain and given the spikes and volumes that we had … that’s obviously a big resource drain.”
Though labor costs were down by 7 percent, overall expenses dropped just 3.4 percent.
The lights had to stay on and the debt had to get paid, and other than lower labor costs, Ballad’s other expenses were similar overall to the previous year. But when it came to patients, the numbers dropped and the revenues dropped along with them.
Surgeries dropped about 33 percent in the quarter, to more than 16,000 to just over 11,000. Urgent care and emergency room visits were down nearly 29% from more than 180,000 to fewer than 130,000.
Outpatient visits dropped by about 20 percent, from 433,043 to 346,771.
Levine said it’s the lack of surgeries that created the biggest drag on operating margin.
“Most of the procedures that were deferred were high-margin procedures,” he said, adding that things have started turning around very recently as Ballad has begun strategically reopening surgeries.
When it comes to COVID and finances, Ballad had more help and less pain in the July-September quarter with more pain and less help last quarter.
The system reported about $10 million in “incremental expenses associated with COVID-19 pandemic” in the summer quarter, but received about $20 million in federal relief, including $19 million in CARES Act grant funding.
In the fall, the incremental expenses rose to almost $24 million, but the federal aid totaled just $7.6 million. Levine said more federal help may be on the horizon, whether from the stimulus passed in late December or elsewhere.
“I think there was some additional funds for hospitals, I just don’t know what form it will come in,” Levine said of the last stimulus plan passed. We’re looking hopefully to FEMA (the Federal Emergency Management Agency) for some recovery of some of the COVID, direct COVID costs.”
Volumes increasing – for now
“There’s a lot of procedures out there that needed to be done that are now being done,” Levine said. “Since we started ramping up our elective procedures again we’re seeing that those cases are coming back.”
Still, he said, many people are “self-selecting” by continuing to stay away.
“Patients don’t want to come until they get their vaccine and until they feel like COVID is sort of in their rear view mirror, and we understand that so it is affecting how we plan and how we budget for next year.”
He does expect some pent up demand for procedures to be unleashed, and Ballad isn’t just taking all comers right away. A group of surgeons has been involved in selecting what types of procedures to bring back first.
“There was some pent up demand and you’ve got to do it in an organized way so you don’t overwhelm your OR staff,” Levine said.
Whether some of that demand will filter over to Ballad’s competitors remains to be seen. Large medical groups like Holston Medical Group, State of Franklin Healthcare Associates and others perform diagnostic and outpatient surgery procedures that compete with Ballad in that high-margin space that is critically important to Ballad’s financial health.
Of that competition, Ballad noted the following in the “Results from Operations” section of its report to the bondholders.
“Some outpatient diagnostic volume is impacted by payer decisions to direct volumes away from hospital-based diagnostic centers…”
Levine touts Ballad’s choice not to furlough employees, raise for bedside workers
Levine said Ballad probably could have finished the quarter with a smaller loss than it did if it had elected to furlough employees as it did in the spring — even if the system could have gotten by without them for a time.
“We felt that we would shoulder that, and that was a decision we made with our board,” he said. “We knew it was going to have a financial impact on us, but we felt as a locally governed not for profit organization the impact on the community would have been too great to have 1,400 people furloughed going into the holiday season.”
Levine said another cost for the system came in the decision to follow a 2019 4 percent pay increase for bedside nurses and aides with a second, much larger one in the fall — 15 percent. That across-the-board increase for people in those positions would have meant a raise of $1.80 for someone earning $12 an hour, $3.60 for someone making $24 an hour or $5.40 for a clinician making $36 an hour.
The system had been implementing pay increases as it could to reverse a trend that had seen Ballad’s clinical turnover rate higher than the national average. He said that had turned better before COVID hit.
A nursing shortage in the middle of the pandemic — and the cost of travel nurses roughly doubling to about $140 an hour — made the decision not such a difficult one, Levine said.
“With that we were able to keep our nursing turnover in check, which was good because we were losing, hospitals all over the country were losing nurses to temp staffing agencies,” Levine said. “That was our strategy behind the wage adjustments for nursing and it worked. Our turnover actually decreased once we did those adjustments.”
That move hasn’t prevented Ballad from paying far more for contract staff than it did the first half of FY 2020. Its contract labor costs were $37 million in the first six months of FY 2021, up from $24 million the prior year — though some of that could have been for the 800 people who temporarily helped during the EPIC transition.
Long-term, Levine said he expects the pay investments to pay off — and lower contract labor costs.
“The nursing adjustments and all those other things on an annualized basis will cost over $20 million. So this stuff doesn’t come cheap but the reality is it’s never wrong to invest in your own people – and particularly when it was difficult.
“To us the right thing is to make sure we’ve got the complement of nurses and bedside caregivers that we can take care of our community not just for COVID but for everything else also.”