GRAND RAPIDS — Spectrum Health recorded a smaller bottom line for 2021 as health systems nationally were ailing from COVID-19 case surges and staff shortages that drove up labor costs.
In the last full year prior to the Feb. 1 merger with Southfield-based Beaumont Health to create what’s temporarily known BHSH System, Spectrum Health in 2021 recorded $291.6 million in operating income on $9.27 billion in operating revenue for a 3.2 percent margin, according to an audited financial statement.
The operating income included $80.4 million in federal and state pandemic relief funding received during the year. Minus the state and federal aid, Spectrum Health recorded $211.2 million in operating income for a 2.3 percent operating margin.
The 2021 results compare with $412.3 million in operating income in 2020 on $8.29 billion in operating revenue from patient care.
Overall, when $307.5 million in net investment and other income are included, Spectrum Health made $594 million in 2021 for a 6.3 percent margin. The Grand Rapids health system a year earlier recorded $731.5 million in net income.
BHSH System Chief Financial Officer Matt Fox noted in the financial report that Spectrum Health “continues to experience wage pressure and retention issues across key clinical positions, having a negative impact on our results” that he expects will “continue for the foreseeable future.”
“Spectrum Health ended the year with positive results, despite a second year of pandemic pressures. I am pleased with the work of our teams to contain costs while meeting the care needs of our community and hopeful that the worst of the pandemic is behind us,” Cox said in a statement emailed to MiBiz. “With nursing and other clinical shortages and pandemic surges, BHSH System, like health care organizations across the country, is working through wage pressures and retention issues. That is what makes programs such as our recently announced collaboration with Grand Valley State University to graduate more nurses more important than ever.”
Under the partnership with GVSU announced this month, BHSH System committed $19 million toward increasing the talent pipeline for nurses who earn their degree at GVSU. Through the BHSH Spectrum Health West Michigan Nurse Scholar program, the health system seeks to support up to 500 additional students over six years at the GVSU Kirkhof College of Nursing. That includes offering $10,000 annual scholarships for nursing students in their junior and senior years.
As well, Spectrum Health in late 2021 budgeted $117 million for higher pay and bonuses to help retain and attract workers amid a widespread health care industry staffing shortage. The cost was expected to cut into Spectrum Health’s financial performance early in 2022, Cox said at the time.
Across business units in 2021, Spectrum Health’s West Michigan operations made $207.6 million. That was $35.1 million better than what was budgeted for Spectrum Health West Michigan, which includes the Grand Rapids and regional community hospital campuses.
The favorable results “were primarily due to increased volumes, higher acuity, and favorable payer mix,” Cox wrote in his report. “Management will need to stay focused on executing operational initiatives to ensure that we are set up for success once acuity returns to more normalized levels.”
Spectrum Health Lakeland in St. Joseph, which operates as a separate division from other operations, recorded a $13.1 million operating loss that was offset by $44.5 million in state and federal pandemic relief funding, as admissions and volumes were down across most service lines.
Patient volumes at Lakeland “were low early in the year but began to return to budgeted levels in the fourth quarter,” according to Spectrum Health’s quarterly financial report.
Priority Health, the health plan with nearly 1.1 million members statewide, made a significantly lower $30.5 million in operating income 2021 while recording $5.48 billion in premium revenues. Cox wrote in the financial report that “unfavorable results were driven by higher-than-expected medical trends due to higher COVID-19 related expenses and rising pharmacy trends.”
Margins remain thin
Financial performance for many health systems and hospitals nationwide in 2021 remained below pre-pandemic levels even as “hospital leaders have learned to better navigate the pandemic’s volatility,” according to health care management consulting firm Kaufman, Hall and Associates LLC.
Hospital margins for 2021 “remained thin, but higher versus 2020,” Kaufman, Hall said in a January report on U.S. hospital finances. A Kaufman, Hall index for median margins nationally for 2021 was 2.5 percent, versus a negative 0.9 percent in 2020. When federal aid is included, median margins were 4 percent in 2021 and 2.8 percent in 2020.
Through the first two months of 2022, the Kaufman, Hall index for median margins nationwide was a negative 3.45 percent in February, an improvement from a negative 4.25 percent in January, “but still well below sustainable levels.”
“Recovery from the Omicron surge likely will continue to be slow in the coming months, and hospitals could face additional setbacks if other variants — such as the BA.2 Omicron subvariant — lead to new surges,” states a March report from Kaufman, Hall.
The report notes that 2022 “is off to a difficult start” as inpatient volumes at hospitals nationwide decreased and outpatient “volumes staggered to recover in the aftermath of the Omicron surge.”