More than $100 million in state and federal assistance accounted for much of Corewell Health’s operating margin during the first nine months of 2022, as results narrowed amid higher labor costs.
The health system — recently renamed after going by BHSH System following the Feb. 1 merger between Spectrum Health and Southfield-based Beaumont Health — recorded $159.4 million in net operating income through the third quarter, according to a quarterly financial statement posted online Monday.
The operating results included $100.3 million in state and federal funding that Corewell Health received this year. Minus the pandemic-relief funding, Corewell Health recorded just $59.1 million in operating income on $10 billion in operating revenue, for a 0.6-percent margin.
In the same period in 2021, prior to closing the merger with Beaumont, Spectrum Health alone made $321.2 million in operating income on $6.78 billion in operating revenue. State and federal funding of $34.9 million lifted the nine-month results in 2021 for Spectrum Health to $356.2 million.
“The organization continues to experience YTD (year-to-date) operating results that are unfavorable to target, in part due to lower volumes, unfavorable payer mix, 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,” Chief Financial Officer Matt Cox wrote in the quarterly financial report. “Care delivery is continuing to experience a decrease in acuity across all markets, which results in lower revenue than projection. We also continue to see lower than expected volumes in the East market.”’
Corewell Health through the third quarter this year also recorded a $1.09 billion net loss on investments.
Unlike prior quarterly reports, the financial statement posted online for the third quarter provides results for the broader health system, including health plan Priority Health, and does not break down results by markets — West Michigan, Southeast Michigan or St. Joseph — as the prior report did for the second quarter.
In a statement emailed to MiBiz, Cox said Corewell Health publicly reports results “based on our two most significant business segments: care and coverage.”
“We manage our long-term debt using consolidated credit, which makes regional, hospital, or physician practice location-specific highlights less relevant. The details we provide to our rating agencies and bond holders show our combined strength as an integrated health system across Michigan,” he said.
The third quarter report does indicate that the care delivery side of the health system recorded a $24.5 million operating loss through the third quarter on $5.4 billion in net patient revenue.
“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 financial report. “Improvements have been made in the second half of the year to reduce agency and critical staffing levels as well as increasing staff productivity.”
The Corewell-owned Priority Health, with 1.2 million members statewide, made $110.9 million in operating income with $4.41 billion in premium revenue.
‘Very difficult 2022’
At midyear, the former BHSH System — as the health system was known prior to the Oct. 11 name change to Corewell Health — recorded $63.5 million in net operating income on $6.58 billion in total operating revenue. The midyear results for the first six months of 2022 included $93.5 million in operating income at Spectrum Health West Michigan and a $99.7 million operating loss at Beaumont Health in Southeast Michigan, plus a $3.1 million operating loss at Spectrum Health Lakeland in St. Joseph and $91.3 million in operating income at Priority Health, as MiBiz reported at the time.
BHSH in September announced the elimination of 400 non-clinical, administrative positions across the state in a move to address rising costs that have been hitting the health care industry hard this year.
The operating results and reduced margins for Corewell Health reflect financial conditions at many U.S. health systems.
Health care management consulting firm Kaufman, Hall and Associates LLC this month said hospitals and health systems collectively recorded a negative year-to-date operating margin of 0.1 percent through the third quarter. The firm’s monthly report uses data from more than 900 hospitals nationwide.
“Heading into the final quarter of the year, hospitals and physician practices have had little reprieve during a very difficult 2022 from a financial perspective,” Erik Swanson, a senior vice president of data and analytics at Kaufman Hall, said in a Nov. 3 statement. “Hospitals and physician practices could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up.”