GRAND RAPIDS – Corewell Health2022 operations ended in the black despite escalating costs for labor, supplies and drugs, but the health system reported an overall net loss as the market deeply impacted the performance of its investments.
The state’s largest health system in Michigan recorded nearly $157.8 million in net operating income out of $13.8 billion in total operating income across all business units. That equates to an operating margin of 1.1 percent, well below the 2.8 percent budgeted for 2022, but “an excellent result when compared to other locations across the country,” CFO Matt Cox said. MyBiz.
Given the financial pressures facing health systems today, Cox said he’s “never been more proud” to end the year without the financial results that Corewell Health originally planned for in 2022.
“Overall for 2022 for Corewell Health, we had a great result,” Cox said. “We finished the year positive from an operating margin perspective, which in this environment is amazing.
“We are well positioned when you look at how we started the year (in 2023) compared to others.”
About half of health systems nationwide ended 2022 with a negative margin, according to healthcare management consulting firm Kaufman, Hall and Associates LLC.
Average hospital operating margins nationally began 2022 at negative 3.4 percent in January and negative 3.6 percent for February, according to Kaufman Hall data. Operating margins improved throughout the year but remained negative, reaching a negative 0.7 percent in December 2022 before slipping to a negative 1 percent in January this year.
“Hospitals entered 2023 on a more stable footing, after the worst financial year since the start of the pandemic. However, they still face a number of ongoing challenges, including higher labor costs, lower patient volumes and a fundamental shift in where patients access care services,” according to Kaufman’s latest monthly report Hall on US hospital performance that uses data from more than 900 hospitals nationwide.
Created by the merger of Grand Rapids-based Spectrum Health and Southfield-based Beaumont Health that closed on Feb. 1, 2022, Corewell Health has 22 hospitals and more than 300 outpatient locations and post-acute care facilities. The organization employs more than 60,000 people and 11,500 physicians and advanced practice providers. The health system also includes the Health Priority health plan of 1.3 million members.
The 2022 results are detailed in an audited financial statement that Corewell Health provided MyBiz included 11 months of operations since the closing of the Beaumont Health merger. The financial report does not break down results by geographic markets.
Because Corewell only launched in February, year-over-year comparisons are not available. However, the financial report notes that Spectrum Health alone recorded $291.6 million in net operating income on $9.17 billion in total operating income in 2021, the last full year before the merger.
Corewell Health began the year with a positive margin for January and budgeted to return to an operating margin of 2.8 percent for 2023 on projected revenue of nearly $14.7 billion, Cox said.
“We are optimistic that we are on track for 2023,” he said. “But we are still challenged by persistent inflation.”
Investments take a hit
However, Corewell posted an overall net loss of $595 million for 2022, driven in part by an $815 million loss on investments stemming from “adverse investment market fluctuations due to higher inflation, rising rates of interest and economic uncertainty,” Cox wrote in the Financial Quarterly. report.
“But we really look at the investments in the long term, so we still have confidence that the investments will return. We’re not fundamentally shocked as a result of what happened,” he said.
Operationally, Corewell Health’s care delivery businesses, including hospitals, recorded $7.5 billion in patient care operating income and operating income of $86.1 million. That equates to an operating margin of 2.1 percent, which was boosted by the $106.1 million Corewell Health received during the year in state and federal pandemic relief aid.
Money through the federal CARES Act covered additional costs that include labor, supplies and pharmaceuticals, Cox said. The health system’s 2023 budget does not include additional CARES Act funding, he said.
Operating results were $162.9 million less than Corewell Health projected for 2022. The weaker results came from higher wages and salaries the health system paid to attract and retain employees, particularly nurses; “significant” spending on nursing agencies to address staff shortages; and continued high levels of incentive compensation for clinical staff, Cox said.
Corewell Health made improvements in the second half to reduce reliance on high-cost travel nursing agencies to fill staffing shortages, he said, noting that the health systems also made gains in productivity and critical staffing levels. Corewell Health has approximately 7,000 open positions across the state.
The health system still uses temporary nurses to fill the gap, even as the pandemic moderated and attracted long-term talent, Cox said.
“Things are definitely not back to pre-pandemic levels, but they are moving in the right direction,” he said.
To address the nursing shortage, Corewell Health last spring committed $19 million to increase the talent pipeline for nurses earning their degrees at Grand Valley State University. Under the researchers’ program, the Grand Rapids health system is supporting up to 500 additional students over six years at the GVSU Kirkhof College of Nursing.
In forming the partnership with GVSU, the health system “came up with a solution that will help provide more nurses in Michigan,” Cox said.
Priority Health had $5.88 billion in premium revenue in 2022 and recorded $56 million in operating income, for a margin of 0.9 percent.
Cox noted in the financial statement that Priority Health’s operating income was $77.6 million less than originally planned for 2022. Medical claims trends for Priority Health “were high during the first quarter related to an increase in COVID-19 improved in the second and third quarters, and increased again in the fourth quarter due to respiratory illnesses and influenza,” Cox wrote in the report. Pharmacy trends for Medicare members were also high, he added.
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