Cleveland Clinic, scrambling to staff hospitals, posts Q1 loss

Dive Brief:

• Cleveland Clinic posted a net loss of $178 million in the first quarter, compared to a net gain of $289 million a year ago, under pressure from a labor crisis that is also challenging many of its peers. The healthcare worker shortage is driving up wage and benefit expenses and prompting greater use of temporary personnel to handle patient needs.
• The medical system said increased overtime, premium pay and agency costs necessary to keep its facilities adequately staffed caused quarterly operating expenses to climb 14.3% from the prior-year period. Rising costs for drugs and supplies added to the pressure. The higher expenses outpaced an 8% increase in operating revenues. 
• The hospital operator also said it cared for fewer patients in the quarter, as nonessential surgeries and procedures were postponed in January. At the same time, investment returns fell by $455.7 million in the quarter, compared to a year ago.

Dive Insight:

Some of the country’s largest nonprofit hospitals had a difficult start to the year as they struggled with weaker investment income and rising costs largely stemming from a nationwide labor shortage. As they did in the beginning of the pandemic, patients postponed nonessential surgeries in January when the omicron variant caused COVID-19 cases to spike, resulting in lost revenue for hospitals.

Cleveland Clinic, which operates 20 hospitals, is the latest in a string of health systems recording losses in the first quarter that includes Ascension, CommonSpirit Health, Kaiser Permanente, Providence and Sutter Health.

The American Hospital Association warned last month that surging expenses for drugs, labor and supplies are straining health systems’ finances and could jeopardize their ability to care for patients. Current expense levels and operating margin declines are not sustainable, the AHA said in a report.

Cleveland Clinic’s first-quarter operating loss was $104.5 million, compared to an operating income of $61.7 million a year ago. Expenses rose primarily due to higher personnel costs, but supplies, pharmaceuticals and other non-labor costs also faced inflationary pressures and supply chain challenges, the hospital system said. 

Salaries, wages and benefits were up 16.6% to $262.4 million, compared to a year ago. The healthcare provider boosted the number of its full-time employees by 3.2%, in part to staff its new London hospital, which opened during the first quarter.

Cleveland Clinic said acute admissions decreased 3.8%, total surgical cases fell 3.1% and outpatient evaluation and management visits increased 2.0% compared to the first quarter of 2021.

The healthcare provider said it is implementing cost management and containment initiatives to address the growth in expenses, including an extensive analysis of its cost structure.