JOHNSON CITY, Tenn. (WJHL) — Ballad Health lost $17.6 million through the first three quarters of its 2023 fiscal year, and CEO Alan Levine said the hospital system likely faces a year or more of rough financial sailing as it works its way out of a heavy reliance on contract labor.

Ballad lost $18.5 million in the quarter that ended March 30. Since it was formed in early 2018, Ballad has had just one year where it was losing money through three quarters, fiscal 2021, when it had lost $14.4 million. Thanks in large part to COVID relief funding, Ballad ended that year $25.9 million in the black, and the system has had net operating revenue of between $19 million and $36 million during its first four full fiscal years.

“There’s been no secret,” Levine told News Channel 11 of the current financial picture. “We’ve been telling folks this was going to happen largely because of the contract labor and the wage expense.”

Ballad’s contract labor (travel nursing) expenses are nearly five times their level of four years ago but have begun to level off. (WJHL photo)

Contract labor, the most common form of which is travel nursing, was a $32.8 million expense line for Ballad in fiscal 2019. Since then, it’s gone to $53.2 million in FY 2020, $85.7 million in FY 2021, and $149 million in FY 2022. Ballad’s fiscal year ends June 30, and through three quarters of FY 2023, those expenses totaled $118.3 million.

But Levine said the system’s challenges are part of a wider trend. Reports early this year in several health care publications and from consultant Kaufman Hall noted that “hospitals face persistent expense challenges, particularly related to labor.”

A Tennessee Hospital Association (THA) report from early this year cited a study from Kaufman Hall saying the state’s hospitals continue facing “existential financial and operational threats…” That study found that in 2022, 45% of the state’s hospitals had “unsustainable metrics” financially, double the amount in 2019 and 2020.

Ballad has increased nursing salaries by more than 25% over the past few years and Levine said a long trend of more nurses quitting or getting terminated than coming on board — which spiked during the COVID-19 pandemic — finally started to change last August. The “annualized” percentage of turnover was above 22% from Sept. 2020 through June 2022. That has been in the mid-teens since last fall, leading to the first situation in a couple years of Ballad seeing net increases in local nursing staff.

“It is a problem and it is an issue, but there’s also a strategy behind what we’re trying to do,” Levine said.

He said with many new nurses now working the floors at Ballad hospitals, the system is keeping travel nurses longer to try and ensure adequate staffing and prevent inexperienced nurses from walking into work situations that are so intense they leave the profession.

Ballad Health CEO Alan Levine (WJHL photo)

“So this is a tightrope we’re walking,” Levine said. “It’s costing us a lot of money. It’s worth it because we want to make sure we can take care of everybody that needs care, and we don’t want to see our turnover go back up.”

Levine said Ballad just had its bond ratings reaffirmed by all three rating agencies and had a successful issuance of debt refinancing. That should lower Ballad’s interest payments on a good portion of its formerly variable-rate debt, which has been rising in concert with U.S. interest rates.

Levine said those ratings affirmations, which mean Ballad can continue to get attractive interest rates, came because the agencies found enough to like about Ballad’s fundamentals despite the current financial difficulties.

“They saw that we had a plan that we told them about a year ago,” he said. “We’ve executed on that plan, they saw their results with our turnover, they liked what they see.”

He said the reduction in contract labor expense will likely take about two years.

“The good news is our losses this year that we’re projecting are significantly below what they were a year ago, so we’re trending in the right direction,” Levine said.

That can’t happen soon enough, he added, saying of a sustained period of losses, “we don’t want to have that happen, so we are doing everything we can to mitigate and avoid it.”

He said cash flow provides the ability to keep funding a very expensive system.

“Our plan for next year is to start buying, replacing all our IV pumps. That’s a very expensive venture. It’s over $20 million to do that… you really want to make sure you get back to solid cash flow so that you can capitalize.”

Levine said Ballad’s strategies to improve efficiencies since the 2018 merger of Mountain States Health Alliance and Wellmont Health System that formed Ballad have prevented much worse financial difficulty. Those have included some unpopular decisions — shutting down Holston Valley Medical Center’s Level 1 trauma center and repurposing one Greeneville hospital among them — but Levine said the net result has been both better patient care and better financial results.

“These are all very rational things we’re doing where the evidence shows by doing it, you’ll improve outcomes. And by the way, we also push cost out of the system which those two things are really important.

“Imagine how we would look if we hadn’t done all those things, if we still had two Level One trauma centers, two level three (neonatal intensive care units), two failing hospitals in Greeneville, three full-service hospitals in Wise County, all losing money. Net financially, we would be a disaster right now. Those were all really hard things to do.”

Levine said Greeneville’s two hospitals, Laughlin and Takoma, lost about $18 million just before the merger and had 25% occupancy. One was repurposed and the other now has 40% occupancy and an operating income of almost $5 million so far this year.

While much of the heavy lifting is done, Levine said more lies ahead. Ballad will decide within weeks whether to close the intensive care unit at Sycamore Shoals Hospital in Elizabethton, for instance.

“I believe it’s the right decision,” Levine said of the possible ICU consolidation, pointing to studies that show higher-volume ICUs that use “intensivists,” like Johnson City Medical Center does, have better patient outcomes.

“Five years ago when we talked about (consolidations) with trauma and (neonatal intensive care), all people could rely on was our word. Now we’ve got five years of experience, and I think that the compelling evidence shows that the decisions we’ve made have been the right ones and they’ve been well executed.”