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In the first six months of Trinity Health’s 2022 fiscal year, which ended Dec. 31, operating profit fell by more than half due to labor costs caused by supply shortages. personnel and salary inflation, according to recent financial documents.
During this six-month period, Trinity, based in Livonia, Michigan, recorded an operating profit of $295.8 million, down 58% from the $710.6 million profit of operating recorded during the same period a year earlier. And the figure for 2022 comes despite the $127.2 million gain on the sale of Gateway Health Plan.
The hit to healthcare operating income naturally impacted operating margins, which were 0.4%, down from 1.8% in the first six months of FY21. Trinity attributed the downward pressure on margins to “expense growth outpacing revenue growth, primarily due to pandemic-related labor costs.”
Revenue also fell, but not as sharply: the $10.22 billion recorded during the period in question represents a decrease of less than 1% compared to the $10.28 billion recorded during the first six months. in FY21. When the Vendor Relief Fund grants were taken out of the mix, Trinity’s revenue actually rose about 3.5% from the prior year.
In total, Trinity’s net income during the period was $878.1 million, compared to $2.7 billion during the same period a year earlier.
WHAT IS THE IMPACT
Wages and salaries at Trinity were impacted by a 1% increase in full-time equivalents (FTEs) and a rate increase of 4.9%, while contract labor expenses increased by 161.9 million, or 156.4. Supplies also rose by $57.8 million, in part due to pandemic personal protective equipment, testing and drug costs.
Total operating expenses of $10.1 billion increased $483 million, or 5%, in the first six months of fiscal 2022 compared to the same period a year earlier, due to 7.9% increase in labor costs, of which 72% of the increase was incurred during the second quarter of the fiscal year.
Through its wholly owned subsidiary, Mercy Health Plan, Trinity sold its 50% stake in Gateway Health Plan on August 31, 2021 to Highmark Ventures. This gave Trinity a dividend payout of $62.5 million, and it recorded a gain on sale of $127.2 million in the first quarter of FY22.
The health system said it “continues to take various actions to mitigate the impact on operations of the COVID-19 pandemic.” These include PRF grants under the CARES Act, the Paycheck Protection Program, and the Healthcare Improvement Act; and rural payments under the U.S. bailout, which can be applied against expenses and lost income in accordance with PRF grant requirements.
THE GREAT TREND
Labor costs have been a persistent issue during the COVID-19 pandemic. A Premier analysis in October estimated that hospitals and health systems across the country are paying $24 billion more a year for skilled clinical work than they did before the pandemic.
Clinical labor costs are increasing an average of 8% per patient day from a pre-pandemic baseline in 2019. For an average 500-bed facility, this translates to $17 million in expenses additional annual manpower since the beginning of the health emergency.
The data also showed that overtime increased by 52% in September. At the same time, the use of temporary and temporary work is up by 132% for full-time workers and 131% for part-time workers. The use of contingent labor – positions created to carry out a project or a temporary work function – is up by nearly 126%.
Overtime and the use of agency staff are the costliest labor choices for hospitals — typically adding 50% or more to an employee’s typical hourly rate, Premier found.
A December report from Moody’s Investors Service gave the nonprofit and public health care sectors a negative credit outlook for this year, based largely on nursing shortages and rising labor costs. which are expected to reduce cash flow from operations between 2% and 9%, in a relatively modest revenue environment. earnings.
Other factors pushing up spending are supply chain disruptions, rising drug costs, rising inflation, and increased investment in cybersecurity.