Erlanger Health System finished the second quarter of the 2022 fiscal year, which runs from Oct. 1 through Dec. 31, with $11.5 million net income from operations despite a COVID-19 surge and ongoing workforce challenges, according to Erlanger's latest quarterly disclosure report released Monday.
During a board of trustees budget and finance committee meeting Monday, Erlanger Chief Financial Officer Lynn DeJaco said that although the pandemic continues to exacerbate labor shortages and supply chain issues, which drives up costs, "strong discipline" around expense management has once again allowed the public health system to post positive earnings.
Since the start of the fiscal year in July through November, DeJaco said management added another $4 million worth of initiatives to its expense management plan that began after CEO Will Jackson took over in fall 2019.
"The largest percentage of those are in the purchased service area with our contracts - we have a strong contracts committee review - and so we're managing those portions of our expense profile very tightly," she said.
Year-to-date, Erlanger's net income from operations was $19.8 million compared to a budget of $17.1 million, according to the report.
Salary costs per hour increased "sharply" in the second quarter as Erlanger was forced to bring in relief staff amid the omicron surge, and DeJaco said growing salary costs are expected to continue for the foreseeable future as Erlanger adjusts to attract and retain workers in a highly competitive job market.
Starting in February, Erlanger will implement a 2% pay increase for most employees, which represents the third across-the-board raise for health system employees in less than three years.
DeJaco noted Erlanger plans to spend more money on capital through the rest of the fiscal year, having only spent $10 million worth of its $37.5 million capital budget so far.
"We did that on purpose. We wanted to see how we could continue to build cash so we could push more into the third and fourth quarter, and then, secondly, to make sure that we could manage the projects," she said.
Erlanger also received more than $14.4 million worth of additional federal relief funds to offset the high cost of caring for COVID-19 patients but did not include those funds in the second quarter report.
"We are currently in discussions about how to appropriately allocate those COVID costs and the lost revenue, and then we'll start releasing some of that over time," DeJaco said.
Overall, the number of patients seeking care for both inpatient and outpatient services was below budget, but Erlanger's patient revenue was boosted over the prior year thanks in part to treating more patients with commercial insurance, which pays better than Medicare and Medicaid.
Commercial payers represented 41% of Erlanger's payor mix in the quarter, which DeJaco said she believes is the highest percentage of commercial payments in Erlanger's history.
DeJaco noted the increased commercial utilization was "not at the expense" of Erlanger's mission as a public hospital, given that Erlanger saw a less than 1% decrease in Medicaid payments.
Another factor driving Erlanger's revenue increase is that patients were, as a whole, sicker and required higher levels of care, which results in higher payments, she said.
Jackson said management will need to remain "laser focused" on controlling expenses through the year as COVID-19 brings ongoing challenges and uncertainty.
"Whether it's labor or otherwise," he said, "that's just the way that we have to operate moving forward, and the way that we've done it the past two and a half years."
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