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Beaumont Health lost $100M in first half of 2022; Spectrum and Priority Health gains offset losses for BHSH System COURTESY PHOTOS

Beaumont Health lost $100M in first half of 2022; Spectrum and Priority Health gains offset losses for BHSH System

BY Thursday, August 18, 2022 12:04pm

First half revenues fell well below BHSH System’s projections as major losses in Southeast Michigan were offset by gains in West Michigan. 

That’s according to a new quarterly report that sheds light on the finances of the largest in-state health care provider created by the merger of Beaumont Health and Spectrum Health earlier this year.

Beaumont lost nearly $100 million through the first six months of 2022, the result of “significant financial headwinds” that are affecting health systems nationally and were particularly acute in Southeast Michigan.

The operating loss in Southeast Michigan stands in contrast to the $93.5 million in operating income that Spectrum Health West Michigan made in the first half on similar revenues.

When combined with a $3.1 million operating loss at Spectrum Health Lakeland in St. Joseph, and the $91.3 million operating income generated by the 1.2 million-member health plan Priority Health, BHSH System recorded $63.5 million in net operating income for the first half on $6.58 billion in total operating revenue. 

The result includes $18.4 million in corporate and other subsidiary losses, according to a quarterly financial report posted online.

The $56.1 million in federal and state pandemic-relief aid that BHSH System received during the period boosted net operating income to $119.6 million.

Chief Financial Officer Matt Cox noted in his quarterly financial report that BHSH System’s financial results “have fallen short” of expectations for 2022. The health system had forecasted $156 million in operating income for the period, including state and federal aid.

“The organization has seen deterioration in its operating results through the first six months of the year. This is the result of lower volumes and higher agency and critical staffing costs in our care delivery divisions. In addition, we have experienced higher than normal medical and pharmacy trends in the health plan,” Cox wrote in the quarterly financial report. “In order to get back on track, leaders are focused on cost containment initiatives as well as length of stay, productivity, access, medical trend management initiatives and acceleration of integration savings.”

The financial report shows the operating loss deepened in the second quarter at Beaumont, which recorded a $31.8 million operating loss in the first quarter of the year.

In a statement today to MiBiz, BHSH System said that “like most other health systems nationally,” it is “facing significant financial headwinds” that include higher expenses, inflation, expiration of aid under the federal CARES Act, and “a challenging labor market.”

“BHSH Beaumont Health was significantly impacted by these financial and workforce headwinds that were particularly strong in Southeast Michigan (in the second quarter). Despite these challenges, our team members continued to provide nationally recognized health care and we were able to make new investments in the market and bring on new talent,” BHSH said. “Although we are facing these current financial headwinds, we are confident we will continue to deliver effectively and successfully on our mission in the communities we serve in Michigan.”

Grand Rapids-based Spectrum Health and Southfield-based Beaumont Health merged Feb. 1 to create the largest in-state health system in Michigan with 22 hospitals, more than 11,500 physicians and advanced practice providers, and 64,000 employees. The second quarter financial report is the first for a full quarter since the merger closed.

Revenues lower than forecasted

The $99.7 million mid-year operating loss at Beaumont Health came on $1.91 billion in total operating revenues in Southeast Michigan. The $3.5 million in state and federal pandemic-relief aid that Beaumont received reduced the net operating loss to $96.2 million, for a 5 percent negative margin.

Spectrum Health West Michigan generated $93.5 million in operating income that also came on $1.91 billion in total operating revenues. Spectrum Health got $46.1 million in state and federal aid to boost mid-year net operating income to $139.7 million, or a 7.1 percent margin.

Lakeland generated $322.9 million in operating revenues in the first half and was aided by $6.4 million in state and federal aid that reversed a loss into $3.3 million in net operating income.

Each of the three business units that deliver care and operate under the BHSH System corporate parent recorded lower revenues than projected. As well, BHSH continues “to see lower than expected volumes in the Southeast (Michigan) market” that Beaumont serves, according to Cox.

“Along with the decrease in acuity, unfavorable results were primarily due to increased salaries and wages expense, significant spend in agency and critical staffing and continued higher levels of premium and incentive compensation for clinical team members,” Cox wrote in the quarterly financial report. “In the second quarter we began to see signs of improvement in agency and critical staffing levels, however, we have a considerable amount of work to do to get back to target.”

Priority Health generated $3.11 billion in total operating revenues in the first half with a 2.9 percent operating margin for $91.3 million in operating income. The result was $4.6 million below projection as Priority Health continued to feel the effects of the pandemic, according to Cox.

“Medical trends have improved from recent months; however, they continue to remain higher than normal due to completion of deferred procedures. Medicare pharmacy trends also remain high,” he wrote.

National trend

Hospitals across the U.S. have been ailing financially throughout the pandemic, in part from reduced patient volumes and higher wages to attract and retain staff amid a worker shortage.

Operating margins for health systems nationally averaged a negative 0.9 percent in June, the sixth straight month in the red, though an improvement over May that reversed a three-month trend, according to health care management consulting firm Kaufman, Hall and Associates LLC.

Growing operating expenses outpaced slight revenue increases, according to the firm’s monthly report on U.S. hospital financial performance.

Hospital expenses nationwide were down in June from May, “but remain extremely elevated from pre-pandemic levels” as “rising employee pay and additional labor pressures are keeping overall expenses high,” according to the report.

“To say that 2022 has challenged healthcare providers is an understatement,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in an Aug. 1 announcement on the firm’s August report. “It’s unlikely that hospitals and health systems can undo the damage caused by the COVID waves of earlier this year, especially with material and labor costs at record highs this summer.”

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