Roughly 45% of Tennessee hospitals are at risk of closing following one of the worst financial years in recent history, according to a report commissioned by the Tennessee Hospital Association.
Dr. Wendy Long, president of the association, said in a news release that the poor financial performance was largely due to workforce shortages and high labor costs, which were exacerbated by the COVID-19 pandemic. In addition, she said the increased cost of providing care far outpaced reimbursement from Medicare, Medicaid and commercial payers.
"Given the unique role hospitals play in the health care system -- operating 24 hours a day, seven days a week, 365 days a year and treating all comers, regardless of their ability to pay -- many traditionally operate on low margins and are vulnerable to shocks in the marketplace," Long said.
Compounding the issue was the number of patients seeking care at hospitals remained below pre-pandemic levels, but those that were hospitalized were on average sicker and stayed longer.
The report was produced by management consulting firm Kaufman Hall and found nearly 60% of Tennessee hospitals lost money on operations in 2022, with an average operating margin of -2.9% across the state. Nationally, the average operating margin in 2022 was 0.4%, according to the report.
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Overall, expenses were $3.2 billion higher than pre-pandemic levels, which led Tennessee hospitals to lose $500 million in income in 2022, according to the report.
As a result, the number of hospitals in an unsustainable financial position has nearly doubled since 2019, when 23% of Tennessee hospitals were at risk of closing. Erik Swanson, senior vice president of data and analytics for Kaufman Hall, said in the news release that "this risk does not reflect imminent closure but highlights risk due to unsustainability of operations."
Although urban hospitals are more financially stressed than prior to the pandemic, rural hospitals account for the vast majority of at-risk hospitals, according to the report.
Paul Keckley, a health care policy analyst and industry expert, said in a phone interview that the depressed operating margins are not surprising given supply chain issues and that many hospitals relied on costly travel nurses, which can be paid more than double what a typical staff nurse makes.
It's also important to note, he said, that Tennessee is home to a lot of small hospitals that were barely making ends meet before COVID-19. Tennessee has the second highest rate of rural hospital closures in the U.S., with rural hospitals accounting for 13 of 16 total hospital closures since 2010, according to data from THA.
On the flip side, many hospitals had strong non-operating financial performance early in the pandemic when the stock market was booming.
"So while the operating margin was disappearing, the non-operating margin was doing well," Keckley said. "Well, that changed in 2022, because the stock market started going down, and you still had the overhang of the higher operating costs."
Aside from the risk of closure, Long said in the release that if margins don't improve hospitals will be forced to cut certain services.
"Unfortunately, according to a recent survey of Tennessee hospitals, 57% of facilities reported that they have already begun reducing or eliminating services," she said.
Keckley said the financial picture for hospitals in Tennessee is worse than the national average because the state hasn't expanded Medicaid under the Affordable Care Act, which would bring more revenue to hospitals. Tennesseans also experience higher rates of chronic diseases and poor health, leading them to use more health care services compared to residents of other states.
He anticipates labor costs will improve as the year goes on, with supply costs adjusting by mid-2024.
"But a lot of these folks can't stay afloat that long, so they're going to be yelling for more money and emergency relief," Keckley said, "and none of that assumes we have a third wave pandemic -- that's the big 'if.'"
Contact Elizabeth Fite at efite@timesfreepress.com or 423-757-6673.