GRAND RAPIDS — BHSH System has eliminated 400 positions across the state in a move to address rising costs that have been hitting the health care industry hard this year.
The cuts also come amid a deep midyear loss at Beaumont Health in Southeast Michigan and lower earnings at Spectrum Health West Michigan.
Jobs cuts announced today will affect non-clinical, administrative positions at BHSH System, the largest in-state health system in Michigan that was created by the February merger between Grand Rapids-based Spectrum Health and Beaumont Health in Southfield.
“Spectrum Health and Beaumont Health came together as a new health system for Michigan to build a future where health is simple, affordable, equitable and exceptional. Our health system, like others around the nation, is facing significant financial pressures from historic inflation, rising pharmaceutical and labor costs, COVID 19, expiration of CARES Act funding and reimbursement not proportional with expenses,” the health system said today in a statement.
The statement also noted BHSH has recruited about 10,000 people this year in clinical positions and at health plan Priority Health.
“We have also made the difficult decision to eliminate about 400 management and non-patient/health plan member-facing roles from our 64,000 team members,” BHSH System said. “We are grateful for the contributions and years of dedicated service provided by our impacted team members and are working to help them find employment within our health system and elsewhere. We remain deeply committed to caring for our team members and our community.”
The statement did not indicate where the job cuts occurred geographically across the state, although Spectrum Health Lakeland in St. Joseph confirmed earlier this week that it had cut nearly two dozen leadership positions, as MiBiz reported on Thursday. BHSH also did not immediately identify the expected cost savings from the job cuts.
The action follows mid-year financial results at BHSH System, first reported by MiBiz last month, that came in well below expectations and included a nearly $100 million operating loss at Beaumont Health. By contrast, Spectrum Health West Michigan recorded $93.5 million in operating income through the first half of the year on similar revenues.
In a quarterly financial report, CFO Matt Cox noted that BHSH System’s financial results had “fallen short” of expectations and that it had “seen deterioration in its operating results through the first six months of the year” resulting from lower patient 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 financial report.
The health system had forecasted $156 million in operating income for the period, including state and federal aid. BHSH projected a smaller $57.1 million operating loss for Beaumont Health and $122.9 million in operating income at Spectrum Health West Michigan, plus $97.8 million in income at Priority Health.
BHSH’s Beaumont Health in Southeast Michigan actually recorded a $99.7 million midyear operating loss on $1.91 billion in total operating revenues. The $3.5 million in state and federal pandemic relief aid that Beaumont received reduced the net operating loss to $96.2 million.
In West Michigan, BHSH Spectrum Health 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 midyear net operating income to $139.7 million.
When combined with a $3.1 million operating loss at Spectrum Health Lakeland, and the $91.3 million in operating income generated by the 1.2 million-member health plan Priority Health, BHSH System recorded $63.5 million in net operating income — well below the projected result — for the first half on $6.58 billion in total operating revenue.
The difficulty BHSH System cited in today’s statement has been playing out across the U.S. health care industry.
Hospitals and health systems nationwide recorded a negative 0.98 median margin for July, the seventh straight month of negative operating results, according to an monthly report in August by health care management consulting firm Kaufman, Hall and Associates LLC.
“U.S. hospitals and health systems are experiencing some of the worst margins since the beginning of the pandemic, and 2022 continues to be on pace to be the worst year of the pandemic in terms of financial performance. The gains hospitals saw in recent months reversed themselves in July, as lagging outpatient volumes shrunk revenues and expenses jumped up from June. Hospitals can no longer count on supplemental federal funding to buffer these mounting losses, as they did in previous pandemic years,” according to the Kaufman Hall report from August. “The situation is so dire that on August 16 Fitch Ratings revised its sector outlook for U.S. not-for-profit hospitals and health systems to ‘deteriorating.’”
The financial challenges hospitals and health systems face will mean higher costs for health care in the U.S.
Higher labor costs and high inflation could drive $370 billion in health care costs across the U.S. by 2027, according to a McKinsey & Co. analysis released this week. When combined with disruptions and prolonged illnesses from the pandemic, higher costs could rise to $600 billion more in national health care expenditures within five years.
While the pandemic’s effect on health care “continues to wane slowly,” there remains “no rest for the weary,” the McKinsey & Co. report warned.
According to the report: “A gathering storm arising from labor shortages, inflation, and endemic COVID-19 challenges the industry anew. It threatens affordability and access to care for consumers, and it poses material risks to profitability for providers, payers, and other healthcare stakeholders.”