Kaweah Health tries to stop financial bleeding

Three months into the fiscal year, Kaweah Health finds themselves needing to increase revenue and trim expenses by $85 million by June of next year, part of national post-pandemic trend for hospitals

VISALIA – The covid-19 pandemic left the world in disarray and hospitals throughout the country bleeding red ink in their financials. In order to stop the bleeding, Kaweah Health has been forced to cut positions and units and find new ways to bring in revenue to clot the losses and sew up the damage.

Due mainly to reasons trailing off the Covid-19 pandemic, Kaweah and many hospitals around the country have been left in financial decline. Three months after Kaweah Health approved their first budget deficit in 60 years, the public hospital district must continue to make changes as the deficit has already surpassed the budgeted amount. Since the end of the fiscal year in June, Kaweah has experienced a $29 million loss, nearly triple the $11 million they projected in this year’s budget. 

“Many cuts have already been enacted, there is a plan. In fact, it’s an evolving plan that we’ve been working on for months,” Kaweah CEO Gary Herbst said. “We are continuing to identify new opportunities, things that we can continue to consider and we’re throwing everything on this plan, even the most draconian. We’re trying to not touch our workforce as much as possible.”

At Kaweah Health’s Oct. 26 Board of Directors meeting, Chief Financial Officer Malinda Tupper gave a review of the most current fiscal year financial results. At the meeting, the community was made aware of the hospital’s numbers and the main reasons for the gap in revenues versus expenditures. Herbst said there are three main reasons for the shortfall – the extensive nursing shortage, low patient intake and rising costs of inflation. However, the organization is not filing for bankruptcy, nor are they being acquired by another healthcare system. 

In response to the financial crisis, Herbst said they have already laid off 100 employees throughout the district. Kaweah is taking care to not cut additional workforce and they have not cut any bedside clinicians which includes registered nurses (RN), certified nurse assistants (CNA), licensed vocational nurses (LVN), or anyone who deals directly with patients. Herbst said an additional decision the company has made is to close one of their skilled nursing facilities, Kaweah Health Transitional Care. Those positions will be eliminated, but those who currently occupy the jobs have the opportunity to fill other open positions within Kaweah Health. 

“What we’re really trying to do is lean the organization and redeploy resources,” Herbst said. 

The skilled nursing facility will remain open until the end of the year. In addition to shutting down the Transitional Care unit, Herbst said they recently notified their neuroscience outpatient clinic, located on West Willow, that they will also be closing in December. However the life saving portion of the neuroscience department will remain for inpatient, trauma programs and the emergency department. 

Why is this happening?

According to a recent report conducted by a national consulting firm KaufmanHall, the Current State of Hospital Finances: Fall 2022 Update, projected that margins are on track to make 2022 the worst year for hospitals since the beginning of the pandemic. The report also shows a projection for 2022 that there will be a 53% increase in hospitals with negative margins, so Kaweah is not alone. Much of the losses are due to skyrocketing labor expenses.

The pandemic plunged the already present nursing shortage into greater turmoil. Hospitals were forced to turn to travel nurses or contracted employees, who cost nearly three times the amount of an employed nurse. As a result, labor expenses have shot through the roof for most hospitals. This year labor expenses are projected to exceed 2021 levels by $57 billion throughout the nation according to KaufmanHall. And even though contract labor is expected to slow for hospitals, the need for nurses remains high and will continue to put pressure on their budgets.

Currently Kaweah has 500 open positions and 240 of those vacancies are RN positions that are filled by travel nurses. Each travel nurse costs the company three times more than an employed nurse. Herbst said they have been paying their travelers anywhere from $180 to $200 dollars an hour, in comparison to $50 to $55 for an employed nurse. Since the start of the pandemic, Kaweah Health has paid $81 million for contract nurses, and that number does not include extra shift bonuses and overtime for local nurses. 

“The biggest impact that will affect us positively is to wean ourselves off of nurse travelers,” Herbst said. “We’re still trying to drive down the rate that we’re paying, which we’ve now had some success.”

Herbst said the travel nurse market is softening bringing the $180 hourly rate to $130. If the rates are able to drop even more to about $110 per hour, that could save Kaweah $20 million. They are also looking to replace half of their current travel nurse population, which would save the company an additional $20 million. These are some of the ways the company is looking to conserve their funding. 

In addition to labor costs pressing on Kaweah, the hospital’s overall patient intake is down. Hebst said people are still afraid to come to the hospital after the pandemic, and as a result procedural volume is down. This causes a big issue for hospitals as elective procedures are the “the financial life blood of a hospital.” 

 “We are down to averaging about 85% occupancy every day, which is a good level to be at, we just need to see more surgical volume or procedural volume,” Herbst said.

Of course, alongside all the other big players, inflation cannot be left out of the conversation. Medication inflation is not like personal inflation, it is significantly more. According to Herbst, pharmaceutical sales have increased by 20%. According to the U.S Department of Health and Human Services, the average price increase for 1,000 different drugs was more than 31%. 

Herbst’s biggest complaint regarding the massive increase in costs is that hospitals have not received any increase in reimbursement funding from Medicare or Medical, “not a single penny more has been reimbursed.” Additionally, this fiscal year the hospital has not received any federal or state funding to help aid in the extreme loss, where they have in past years. Hospitals around the country are pleading with the state and federal government to release available funding to help.  

What is the plan?

Kaweah is now on a mission to create and follow a rescue plan that will either “increase revenue or trim expenses” by $85 million by the end of the fiscal year in June 2023. Because of the major loss in revenue and expenditures the hospital has a few additional plans as to how they can get back in the black. 

“We know that we won’t find enough in cuts, because I’ve really got to find about $85 million in total cuts,” Herbst said. “And even if I’m successful in that, we’ll still end the year with a loss.”

The hospital has cut about 100 unfilled positions from its open jobs list. Kaweah has had directors leave and found ways to work around rehiring their positions. Hebrst said executives, or senior management staff, have taken a 20% pay cut, and directors, or middle management staff, have taken a 10% pay cut. Additionally none of the executives or directors will receive their annual raise at the start of the year. The hospital has also discovered areas of savings and revenue enhancements adding up to about $22 million in Medicare revenue they will be able to bring in each year.

Additionally, the hospital plans to continue to create a good experience for patients and their families. Herbst said he is aware that many residents seek care elsewhere for a variety of different procedures and ideally he would like to bring that business back home. 

“I’m encouraging our medical staff and our employees that the number one thing they can do is to create a phenomenal experience for our patients and their families so that nobody would want to go anywhere, but Kaweah for their care,” he said. 

Kaweah has won a handful of awards in the recent past. In 2020, 2021 and 2022, they have made America’s 250 Best Hospitals Award. They are among the top 5% in the nation for consistently delivering clinical quality. Additionally in 2021, 2022 and 2023, they made America’s 50 Best Hospitals for Cardiac Surgery Award. 

From here on out, Herbst said the plan is to only bring on board services that generate revenue. “We continue to look at different lines and or services, but unlike in the past where it was just as much mission driven as it was financially driven, we’re not pursuing any services at this point that are not expected to be profitable,” Herbst said.

Some examples of continued expansion include mental health services. Together with Tulare County, Kaweah Health is launching an adolescent crisis stabilization unit that will be funded through a state grant as well as annual funding from the county. The hospital district is also exploring an adult crisis stabilization unit, as well as an outpatient mental health facility with psychiatrists, psychologists and mental health workers. 

They are developing an outpatient clinic near Visalia’s Industrial Park, to support all distribution businesses. It will offer pre-employment screenings, workers compensation, injury treatment, etc. Additionally, to fill a void in the county, they recently opened a urology clinic. It was made possible through a new affiliation with University of Southern California’s Keck School of Medicine.

Herbst said they are also on the verge of signing an agreement with Stanford Health and their Cardiothoracic department. This agreement is with the hopes to further “elevate the caliber” of their cardiovascular program. 

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