Becker's Hospital Review

25 CFO / FINANCE Viewpoint: US can't trim healthcare costs without moderating job growth By Morgan Haefner E fforts to lower healthcare costs are not likely to succeed as long as job growth in the sector remains strong, according to a viewpoint article published in JAMA. Jonathan Skinner, PhD, from the depart- ment of economics at Hanover, N.H.-based Dartmouth College Geisel School of Medi- cine, and Amitabh Chandra, PhD, from the Kennedy School of Government at Cam- bridge, Mass.-based Harvard University, co-authored the article. As healthcare costs increased to 18 percent of gross domestic product in November 2017, healthcare jobs continued to increase by 2.1 percent annu- ally, according to the authors. Between De- cember 2007 and December 2017, healthcare added 2.8 million jobs, representing almost a third of new U.S. jobs. "It is not surprising that employment growth should be a bellwether for rising healthcare expenditures because salaries and wages ac- count for an average 55 percent of operat- ing expenses for hospitals, physician offices, and outpatient care, and nearly 70 percent of hospital expenses," the authors wrote. "e problem is that the United States cannot re- duce growth of healthcare costs without a corresponding moderation in the growth of healthcare employment." e authors pointed to nonprofit hospitals as one example of where an association be- tween healthcare jobs and healthcare spend- ing is strong. While for-profit industries cut employment and return profits to sharehold- ers, nonprofits can't do this, and instead ex- pand their services, which may include hir- ing nurses or other staff. In addition, while healthcare is ripe with technological advanc- es, ones like widespread EHR adoption have been labor-intensive, adding extra costs that are passed down to payers and consumers through hospitals' pricing powers. "Unlike retail and manufacturing industries in which technology changes enhance la- bor productivity, electronic health records (EHRs) have added to the required human workload, whether this involves physicians and nurses spending many more hours enter- ing information into the EHR, hiring scribes to accompany clinicians to enter this infor- mation, or paying support staff for EHR in- frastructure investments," the authors wrote. Systemwide change, then, may come from trimming healthcare employment, the au- thors claim. e "focus should be on re- straining overall hiring by right-sizing jobs to employees who can best perform them at the lowest cost or by closing inefficient facilities. Similarly, the urge to expand employment using unexpectedly healthy profit margins should be resisted because it is easier to cre- ate new positions than it is to lay off workers in a less sanguine future," they wrote. n Sentara Healthcare's annual net income nearly doubles By Ayla Ellison N orfolk, Va.-based Sentara Healthcare saw its financial picture improve in 2017, ac- cording to bondholder documents. The 12-hospital system reported revenues of $5.3 billion in 2017, up from revenues of $5.1 billion in the year prior. The increase was largely attribut- able to an increase in net patient service revenue, which climbed 5.8 percent year over year to $4 billion in 2017. After factoring in expenses, which grew 4.2 per- cent year over year, Sentara ended 2017 with operating income of $244.1 million. That's com- pared to 2016, when the health system reported operating income of $233.8 million. Sentara benefited from strong nonoperating gains in 2017, which fueled a significant increase in net income. The health system ended 2017 with net income of $616.3 million, up 71.7 per- cent from net income of $359 million in 2016. n Fairview Health Services' annual net income more than doubles By Morgan Haefner M inneapolis-based Fairview Health Services saw its financial picture improve in 2017 following its acquisition of two health systems. The 12-hospital nonprofit health system reported operating reve- nue of $5.3 billion for the year ended Dec. 31, 2017, up 20.9 per- cent from the year prior, according to unaudited bondholder doc- uments. Fairview Health Services saw net patient revenue climb $817.8 million during that time, largely driven by its acquisitions of St. Paul, Minn.-based HealthEast System and Grand Rapids, Minn.- based Grand Itasca Clinic & Hospital. Fairview's HealthEast acquisi- tion contributed $575.2 million in revenue, while the Grand Itasca deal contributed $88.5 million in revenue. At the same time, Fairview saw net operating income fall nearly 25 percent to $98.5 million due to increased labor and supply costs as well as unit cost increases outstripping reimbursement, among other factors. The lower operating income pulled down Fairview's operating margin to 1.9 percent in 2017 compared to 3.1 percent in 2016. However, after accounting for nonoperating gains, Fairview more than doubled its net income to $456.9 million in 2017, compared to $221.2 million in the same period of 2016. Fairview said the year- over-year improvement reflected gains on acquisitions and higher investment performance. n

• Cover