Becker's Hospital Review

13 CFO / FINANCE Layoffs cool as hospital margins stabilize By Alan Condon L ayoffs are slowing at hospitals and health systems as margins gradually improve, but CFOs continue to focus on controlling costs — particularly on the labor and supply fronts — to secure the long-term sustainability of their organizations. Last year was characterized by hospital and health systems big and small trimming their workforces due to financial and operational challenges. From October 2022 through December 2023, Becker's reported on more than 100 hospitals and health systems across the country that laid off workers, eliminated positions or reduced or closed certain facilities and services to help shore up finances. While layoffs have been reported at some hospitals this year, workforce cuts have been occuring at a slower rate compared to in 2023. Hospital revenues are up year over year as patient volumes continue to rebound. Operating margins have fluctuated in the last 12 months, from a -1.2% low in February 2023 to 5.5% highs in June and December, according to Kaufman Hall. In January, average operating and operating EBITDA margins dropped to 5.1%. Kaufman analysts noted that too many hospitals are losing money and high-performing hospitals doing better and better, "effectively pulling away from the pack." Fitch Ratings has described 2024 as another "make or break" year for a significant portion of the nonprofit hospital sector, which continues to battle an ongoing "labordemic." However, the U.S. has also avoided a recession so far, partly due to a robust healthcare job market, according to e Wall Street Journal. n Fitch revises UPMC's outlook after 'challenging 2023 results' By Alan Condon F itch Ratings has affirmed UPMC's issuer default and revenue bond ratings as "A" and revised the Pittsburgh-based health system's outlook from positive to stable. Five things to know: 1. e rating affirmation is based on UPMC's leading market share position in its core markets of western Pennsylvania, Fitch said in a March 19 news release. It also reflects the system's revenue diversity across several markets in Pennsylvania, western New York and northwestern Maryland. 2. e rating is further supported by UPMC's large insurance division, which accounted for 55% of the consolidated system operating revenues in fiscal 2023 and provides a certain level of revenue predictability, according to Fitch. 3. Fitch said the outlook revision from positive to stable is based on "challenging 2023 results." UPMC reported a $198 million operating loss (-0.7% margin) last year, down from a $162 million gain (0.6% margin) in 2022. 4. e 40-hospital system appointed Frederick Hargett executive vice president and CFO, effective Oct. 1, and is focused on turning operations back to a positive territory. 5. UPMC forecasts an operating EBITDA margin of 3.6% in 2024 and expects that its budgeted operating results will be maintained over the longer term. n The overwhelming consensus for revenue cycle's top challenge By Andrew Cass N inety percent of health system finance leaders surveyed by the Healthcare Financial Management Association agreed on the top challenge facing revenue cycle teams: denials. The "HFMA Health System CFO Pain Points 2024: Margin Challenges and Opportunities for Vendors" report is based on survey responses from 135 health system CFOs and CFO qualitative interviews that were held in the first quarter of 2024, according to a March 6 HFMA news release. According to the report, 82% of health systems said their denial rate is up relative to 2019. Sixty-two percent of health system leaders surveyed said Medicare Advantage is "significantly more difficult to work with" than commercial or traditional Medicare plans, according to the release. "Medicare Advantage plans often have different clinical policies than Medicare and other commercial plans which leads to more denials. Health systems are frustrated; 19% have already dropped one or more Medicare Advantage plan," the release said. n

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