Hartford Business Journal

22 HARTFORDBUSINESS.COM | October 10, 2022 Wellness Check Hospital execs say finances stumble amid sluggish patient volumes, rising expenses, end of COVID aid By Andrew Larson alarson@hartfordbusiness.com H ospitals in Connecticut saw substantial gains in revenue during 2021, but many will operate at a deficit during fiscal 2022, which closed Sept. 30, as pandemic relief diminishes and patient volumes remain sluggish. Many Connecticut hospitals, including Middlesex Hospital, saw operating losses driven by the evap- oration of COVID-19 grants, coupled with an inflationary economy and rising expenses. "We've got costs going up for a whole variety of reasons, much of which have to do with the impact of the pandemic," said Middlesex Hospital President and CEO Vincent Capece Jr. "It's kind of thrown all the supply chain into a frenzy. And then I don't know that anybody really has an explanation as to what's going on with labor, but there just doesn't seem to be enough people out there." Patient volumes, a main revenue driver, were higher in fiscal 2022 than in the prior year, but still below pre-pandemic levels in many depart- ments, he said. Routine treatment and care has not returned to pre-pandemic levels, though in many areas it has at least partially recovered from pandemic lows. In general, hospitals are seeing patients less often, and when they do, patients tend to be sicker — and therefore more expensive to treat. Emergency room volumes may never reach pre-pandemic levels, said Middlesex Hospital Chief Financial Officer Susan Martin. "When they do come in, they're really sick, much sicker than they were before the pandemic, and some of that probably has to do with the fact that patients put off their care during the pandemic phase," Martin explained. Higher insurance costs are also causing people to delay care, she added. In early September, the Connecticut Insurance Department approved an average 12.9% rate hike for several state health insur- ance providers, slightly less than the companies requested. Fixed costs Hospitals are seeing insurance companies push patients toward freestanding urgent care clinics and surgical centers, which have lower fixed costs because they don't have to operate an emergency room 24/7, and have fewer regulatory hurdles. "They can do things less expen- sively, and that's why a lot of insur- ance companies are trying to push the care in that direction," Capece said. "But then it takes away from the hospital procedures that are profit- able, and are helping to pay for things that no one else will pay for, which means whatever is left in the hospital, we need to charge even more for it, to make ends meet. So it's a vicious cycle that is continuing to drive costs up." Hospitals, which have substantially higher fixed costs than standalone enterprises, don't see their costs drop when patient volume declines the way that other organizations do. "You still have to cover those costs," Capece said. "And that's why we're so dependent on volume. And, as we said earlier, the costs that we have are going up, so all of our fixed costs Middlesex Hospital President and CEO Vincent Capece Jr. says hospitals are facing higher costs amid supply chain disruptions and labor shortages. and many of our variable costs have continued to go up at a much faster rate than our prices have been able to go up." Middlesex received about $30 million in COVID grants in fiscal 2020, and about $10 million in fiscal 2021 and 2022. So far, it doesn't appear hospitals will receive any support from the program in 2023, resulting in a direct revenue loss. "It has helped us to weather the storm," Capece said. "But as we look ahead, we really don't see any end in sight right now to the escalation in costs." Revenues rebounded during fiscal 2021, with the state's 27 acute- care hospitals generating $337.4 million in additional patient revenue compared to a year earlier, according to a report from the Office of Health Strategy. Overall, the state's hospitals in fiscal 2021 reported a collective operating margin of $333.4 million, up from $40.9 million a year earlier, and an overall margin of $1.5 billion, compared to $365.5 million in fiscal 2020. However, the current financial reality is different, hospital executives said. "The picture today is 180 degrees the oppo- site, just 12 months later and the red ink is jeopardizing access to care throughout this country and in places in Connecticut," said Bristol Hospital CEO Kurt A. Barwis. "Even hospitals and systems that have never lost money, but HBJ PHOTO | STEVE LASCHEVER Susan Martin Kurt Barwis

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