Report: Connecticut’s hospitals under ‘extraordinary financial pressures’

Republican-American – Wednesday, December 18, 2024
By Paul Hughes

Hospitals and health systems in Connecticut continue to operate under “extraordinary financial pressures” that threaten their financial health, according to a report released Wednesday.

The independent analysis by Kaufman Hall, a national health care economics firm, found rising costs for labor, pharmaceutical drugs and medical supplies, coupled with inadequate Medicare and Medicaid reimbursement rates, are straining the state’s 27 acute-care hospitals.

Connecticut Hospital Association released the Kaufman Hall report Wednesday to raise awareness of the financial and operational challenges confronting hospitals ahead of the upcoming General Assembly session in January, when the hospital industry once again will appeal to legislators and Gov. Ned Lamont for relief.

“Financial challenges are a real and persistent challenge to the sustainability of Connecticut hospitals, the nearly 260,000 jobs they support and the high level of care they provide that all patients deserve,” said Jennifer Jackson, president and CEO of CHA.

An analyst from Kaufman Hall and executives from Nuvance Health, the University of Connecticut Health Center and Yale-New Haven Health participated in a virtual presentation of the analysis Wednesday.

THE KAUFMAN HALL ANALYSIS found Connecticut hospital finances remain at risk, operating expenses are rising at rates that exceed national and regional trends, and revenue is lagging behind national and regional levels.

According to the report, Connecticut hospitals produced a combined operating margin of negative 0.5% in 2023, compared to 2.6% nationally and 2.2% for Northeastern and Mid-Atlantic states.

“There was some improvement over fiscal year 2022 to fiscal year 2023 for Connecticut hospitals; unfortunately, on the whole, they are cumulatively operating at a loss,” said Erik Swanson, an analyst with Kaufman Hall. “This negative 0.5% … is really an unsustainable level of operating margin.”

The 27 hospitals collectively had operating losses of $76 million in 2023, according to the report. This improves on the combined $164 million loss in 2022. Hospitals had operating gains of $607 million in 2019 preceding the COVID-19 pandemic.

Overall, the state’s hospitals have seen $2.3 billion less in operating income since 2019, the report said. Meanwhile, median operating expenses rose $1 billion in 2023. This 6.5% increase compares to a 5.5% for Northeastern and Mid-Atlantic states, and a 4.5% increase nationwide.

Median labor costs in Connecticut increased 4.4%, compared 2.9% regionally and 1.8% nationally. Swanson said the 2023 increase amounted to $169 million.

The report said Connecticut hospitals were slightly less dependent on contract labor in 2023 but still used contract labor more often compared to hospitals nationally due in part to “significant, persistent” state workforce shortages.”

CHA’s legislative agenda will call for bolstering recruitment, training and retention of health care workers.

MEDIAN DRUG COSTS increased 10% in Connecticut and the median costs for medical supplies rose 6.8%, according to the analysis.
Swanson said drug costs were up $249 million in 2023 and medical supplies $92 million compared to 2022.

The report said Medicare and Medicaid payment updates have not kept pace with the cost of care. In 2023, Connecticut hospitals incurred nearly $1.4 billion in Medicare losses and $1.43 billion in Medicaid losses, according to the report.

Medicaid is a joint federal and state program that gives health coverage to some people with limited income and resources. State governments administer Medicaid. Medicare is federal health insurance for anyone age 65 and older, and some people under 65 with certain disabilities or conditions. Swanson said any type of underpayment further exacerbates financial and operational challenges for Connecticut hospitals.

Nuvance operates Danbury Hospital, New Milford Hospital, Norwalk Hospital and Sharon Hospital

“When you compare that to the increases we get from Medicare and Medicaid, we have a $40 million gap we have to close every year just to prevent ourselves from getting further underwater,” said Dan DeBarba, chief financial officer for Nuvance.

The analysis cited figures from the Office of Health Strategy that state Medicare reimbursements average 74 cents on the dollar and Medicaid pays an average of 62 cents on the dollar.

PAMELA SUTTON-WALLACE, president of Yale-New Haven Health, said the uncompensated portion of Medicare and Medicaid patients cost Yale $500 million in 2023 on top of $191 million in free or discounted care that its hospitals provided.

DeBarba said the underfunding of Medicare and Medicaid shifts cost to commercial insurance payers and the people they insure.

The report said the low Medicaid reimbursement rates also create barriers to heatlh care access for low-income residents.

“Medicaid underfunding not only shifts costs to commercial health insurance, but it also jeopardizes access to needed care and social supports for people who are medically underserved,” the report states.

Jackson said CHA again will lobby the legislature and governor to increase Medicaid reimbursement rates.

“It’s absolutely imperative that Medicaid begin to pay rates that cover the cost of care,” she said.

However, the legislature’s two budget committees were advised last week the Medicaid program is $225 million over budget largely due to a rising caseload and increased costs per case.

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