Published in Health Care

Spectrum Health to spend $117M on pay, bonuses to combat staffing woes

BY Sunday, November 21, 2021 06:20pm

GRAND RAPIDS — Spectrum Health plans to spend $117 million in the coming months on higher pay and bonuses to help retain and attract workers amid a widespread health care industry staffing shortage.

Those costs will begin to cut into Spectrum Health’s bottom line in the current fourth quarter and into next year after the Grand Rapids health system’s financial performance held steady in the third quarter.

While financial results through the third quarter were ahead of budget targets for the year, Spectrum Health — like other health systems — “is experiencing wage pressures and retention issues across key clinical areas,” Chief Financial Officer Matt Cox wrote in a quarterly report posted online. 

“As a result, we expect these items to have a significant negative impact to our fourth-quarter results,” he wrote.

The hit will come from $117 million in pay raises, retention and sign-on bonuses for clinical staff that included up to $12,000 for inpatient registered nurses, and an increase in Spectrum Health’s minimum wage to $15 an hour, Cox said in an interview with MiBiz.

Of the $117 million, Spectrum Health will recognize $60 million in the fourth quarter after paying bonuses during November, Cox said. The health system will recognize the remaining $57 million in 2022, he said.

“That is going to be a pretty big impact on us. It’s something we’re going to be able to cover as an organization, but it was a big investment,” Cox said. “There’s a staffing crisis going on right now, so we wanted to retain our current staff. We’re doing everything we can to build up our team and get through this pandemic.”

Raising the health system’s minimum wage to $15 an hour was “not only the right thing to do to support our staff, but it’s become the de facto minimum wage in West Michigan,” Cox said.

“You can’t drive by a fast-food place and not see a sign out front that says, ‘$15 an hour.’ It’s something we needed to do for our staff that were making beneath that because they were getting recruited for other roles,” he said.

President and CEO Tina Freese Decker said in a COVID-19 media briefing last week that Spectrum Health provided the added compensation “to increase certain pay ranges and be more consistent with the market.”

“Overall, we’re managing that appropriately consistent with our budget, trying to make decisions that will help us navigate the COVID-19 pandemic and all of the other things that are with us, and trying to make sure our culture is focused on our values and allows us to deliver on our mission to improve health, inspire hope and save lives,” Freese Decker said.

As with many employers, health systems have been paying sign-on and retention bonuses and increasing pay to attract and keep employees in the present labor crunch.

University of Michigan Health-West, for example, said in September that it offered bonuses for new employees across numerous positions, as well as to retain existing staff. The bonuses ranged from $1,000 to $10,000 and included retention requirements from 90 days to 18 months.

Spectrum Health’s bonuses require clinical staff to remain with the health system through Dec. 31, 2022, Cox said.

‘Solid today’

Through three quarters of 2021, Spectrum Heath had $6.78 billion in total operating revenues with net operating income of $356.2 million, or a 5.2-percent operating margin that was $79 million ahead of budget forecasts, according to the third quarter financial report.

Net operating income included $35 million in state and federal COVID-19 relief funding. Minus the relief funding, Spectrum Health had $321.3 million in operating income, or a 4.7-percent margin.

Including revenue from other sources such as $213.9 million made from investments through three quarters, Spectrum Health had $569.6 million in total net income year-to-date, according to the quarterly financial statement.

“We’ve been able to hold our own through the pandemic. We’ve performed better than most,” Cox said. “I do have concerns about the future, I have concerns about inflation, I have concerns about the lingering impacts of COVID. We’re solid today and we have to just continue to make good decisions for our community so we can be strong in the future.”

Despite the staffing-related costs, Cox hopes Spectrum Health can finish 2021 close to a budget plan that projected $8.81 billion in operating revenue and a $275 million operating margin for the year.

Priority Health accounted for two-thirds of Spectrum Health’s revenue and earnings through the third quarter. The 1.1 million-member health plan generated $4.32 billion in total operating revenue with net operating income of $123.6 million.

Including investment income, Priority Health made $143.1 million in net income through the third quarter.

In his quarterly report, Cox noted that Priority Health’s operating income was $18 million below budget because of higher-than-expected medical claims driven by pandemic-related expenses and rising costs of prescription drugs.

“We’re definitely seeing the impact of COVID treatment, backlogs and just a generally sicker population that has impacted Priority Health,” Cox said.

The American Hospital Association (AHA) in September warned that higher costs for labor, drugs and supplies will continue to hit finances at health systems and hospitals in the U.S. through 2021. An analysis conducted for the AHA by Chicago-based Kaufman, Hall & Associates LLC estimated at the time that hospitals would collectively lose $54 billion in net income over 2021, even with the billions in aid from the federal CARES Act enacted last year. 

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