JOHNSON CITY, Tenn. (WJHL) — Ballad Health continued a trend of heavy financial operating losses in the quarter that ended Sept. 30, with newly released documents showing a loss of $18.6 million.

The report for the first quarter of Ballad’s fiscal year comes after the hospital system lost $40 million in fiscal 2023 (July 2022-June 2023). That was the five-year-old system’s first annual operating loss.

Ballad’s report showed that labor costs, including fees to hospital-based providers such as physician groups, drove much of the $31.8 million in higher expenses compared to the same quarter a year ago.

Those labor cost increases accounted for most of the operating loss, as they took up all of the $18 million operating revenue increase plus an additional $14 million. Higher supply costs of $3.2 million and interest costs ($1.6 million) accounted for most of the remaining loss.

Ballad CEO Alan Levine warned a year ago, after a $9 million first-quarter loss, that the underlying factors driving hospital system losses weren’t likely to resolve themselves quickly. Those include nursing shortages and higher labor costs that are being incurred partly to attract staff.

Insurance companies partly to blame?

One note in the report noted what Ballad said is a trend among Medicare Advantage (MA) insurance plans that is dragging on revenues.

Hospital systems have long complained that MA insurers have consistently applied different (and lower) payment codes to certain types of care than traditional Medicare and that they have denied inpatient status and paid for lower-cost “observation” status unfairly.

“These level of care changes lead to reductions in reimbursement either through the imposition of lower DRGs or conversion of patients to outpatient observation status, even if the admission was prior-authorized by the payer,” the report’s notes say.

The notes add that while those changes impacted 8% of Ballad inpatients in the fiscal year that ended June 30, that rose to 10% in the most recent quarter.

More than 36% of Ballad patients are in the Medicare Advantage program. A new federal rule that becomes effective Jan. 1 is designed to prohibit MA plans “from limiting or denying coverage for a Medicare-covered service based on their own internal or proprietary criteria if such restrictions do not exist in traditional Medicare,” Ballad’s quarterly report states.

Losses widespread across systems

An internal analysis provided to Ballad this month from one of its banks shows that through June 30, the system’s -1.7% operating margin was actually better than four of seven “peer systems” that it benchmarks against.

Performing worse were Baptist Memorial Health Care (-6.0%) and Methodist Le Bonheur (-10.5%), both of Memphis, as well as Covenant Health (-3.2%) of Knoxville and Roanoke, Va.-headquartered Carillion (-3.0%).

Novant Health of Winston-Salem, N.C. had the best margin, 1.0%, while Vanderbilt was the only other positive performer at 0.8%. University Health System of Knoxville had a -1.1% margin.