Chattanooga's Erlanger Health System exits pandemic on surer financial footing

Staff Photo by Robin Rudd / The sun and clouds are reflected in a portion of Erlanger Medical Center. Erlanger's first in-person board meeting since before COVID was held on June 24, 2021. The board voted to approve the FY22 budget at this meeting.
Staff Photo by Robin Rudd / The sun and clouds are reflected in a portion of Erlanger Medical Center. Erlanger's first in-person board meeting since before COVID was held on June 24, 2021. The board voted to approve the FY22 budget at this meeting.

Dramatic drops in patient visits, surgeries and revenue as a result of the COVID-19 pandemic created financial crises for hospitals across the nation, but Erlanger Health System in Chattanooga is one of the few fortunate ones expecting to head into the new fiscal year on July 1 on its most solid financial footing in recent years.

Like all hospitals in the United States, Erlanger received a sum of federal relief funds meant to offset the costs of the pandemic. However, an analysis of the public hospital's financial records shows that a large part of the health system's financial turnaround was due to expense management - including controlling labor costs, improved billing and fewer wasted supplies.

"The good news for Erlanger was way before COVID-19 was impactful for us, we had begun an initiative for expense reduction, and so that led us to be able to withstand a lot more of the turmoil, if you will, than many other organizations," Lynn DeJaco, who became Erlanger's interim chief financial officer in May 2021, said during a hospital board meeting Thursday evening. "This team truly adjusted the sails and allowed us to carry forward in 2021."

The health system's fiscal year 2022 budget, which was approved Thursday by Erlanger's board of trustees, shows plans to bring in a net income of $20 million by growing revenue by 5.4% and admissions by 6.4% in the coming year.

It also allocates $37 million toward capital infrastructure improvements, purchasing new equipment and continuing to upgrade and enhance Erlanger's information technology.

The budget includes $6.7 million for across-the-board salary and wage increases for staff - something that Erlanger CEO Dr. Will Jackson said prior to Thursday's meeting was necessary to reward employees for their hard work over the past year and encourage them to keep pressing forward.

"We have to be able to continue to be relentless in controlling the things we can control. That's not easy to do, particularly when you're coming out of a pandemic - Lord willing - and when people have been performing at a high level for a long period of time," Jackson said.

When Jackson took over the helm as CEO in fall 2019, he began the task of making Erlanger profitable again, which required cutting expenses, the largest of which is labor.

Erlanger's salary costs hit a record-high $593,938,115 in fiscal year 2018 just before Jackson became CEO and cost the health system $576,533,871 at the end of his first year.

Costs of Erlanger's next largest expenses - purchased services, supplies and drugs - have also been reined in, and although they're projected to increase in the new year as the health system grows, the rate at which those expenses are growing is much slower than in years past.

Jackson said those cost-cutting measures have not equated to "cutting corners."

"Honestly, it's just getting better at what we do, but doing it intentionally, because what you measure, you're going to manage, and we just hadn't measured these items as aggressively in the past," he said. "Unless we have that margin, we're not going to be able to create the ability to invest back in, first and foremost, our people, but also in the technology, the structures, the building and everything that allows for us to create the experience and the level of sophistication, safety and quality that patients want and need."

DeJaco said during the board meeting that the improvements are a testament to Erlanger's nursing, operations and human resources leaders and the others that managed labor costs throughout the pandemic without resorting to contract labor such as travel nurses, like many other hospitals.

"Staff really stepped up to provide those services, above and beyond, taking extra shifts and really working to keep this organization moving forward and caring for all those complicated patients," she said, adding that patient safety metrics also improved over the past year.

As a result, Erlanger is on track to finish the year with its largest operating margin (3.39%) since fiscal year 2016.

Despite Erlanger's positive financial status, leaders said there will be many risks and challenges that could jeopardize next year's performance.

Chief Administrative Officer Gregg Gentry said the entire health care industry continues to face "huge uncertainty."

"Are we going to have another deep pandemic in the late fall and the winter?" Gentry said. "If all of a sudden we have another deep pandemic, things start to shut down, volume goes away, our COVID patients go back up ... we don't know if there'll be government funding to support another round of it. That uncertainty is sitting before us."

Other uncertainties include reductions in government payments and supplement funds that Erlanger receives for being a safety net provider that cares for a large portion of patients without health insurance or ability to pay, as well as labor shortages and burnout.

"We've got to find ways to invest in our workforce, make sure they get time off, make sure that we let them know that we care about them and that they are first priority and we've got to walk the walk in doing that," Jackson said. "That is compounded by the fact that the labor market, the inflationary pressures we're under right now are really, really remarkable. That's probably an understatement.

"There's been a huge dislocation around the labor marketplace, and when you combine that with the nature of the pandemic - it's going to be a real pressure for us, as it is for everyone in our industry," he said.

Contact Elizabeth Fite at or 423-757-6673.

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